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UNIVERSITY  OF  ILLINOIS  STUDIES 

IN  THE 

SOCIAL  SCIENCES 


Pages  121  to  136  ar*  missing  Apr.  1912 


Financial  History  of  Ohio 


BY 


ERNEST  LUDLOW  BOGART,  Ph.D. 

Associate  Professor  of  Economics 

University  of  Illinois 


URBANA-CHAMPAIGN,  ILLINOIS 

PUBLISHED  BY  THE  UNIVERSITY 
1912 '  >»» 


COPYRIGHT  1912 
BY  THE  UNIVERSITY  OF  ILLINOIS 


1L 


PREFACE 

This  work  was  begun  some  years  ago  at  Oberlin  Col- 
lege;  laid  aside  for  more  pressing  duties,  it  has  since  been 
carried  to  completion,  at  odd  intervals  and  for  the  most 
part  at  a  distance  from  Ohio.  For  some  of  the  short- 
comings this  may  be  held  responsible.  It  is  based  almost 
exclusively  upon  official  sources ;  these  had  remained  prac- 
tically unused  in  other  publications  relating  to  the  state, 
and  upon  the  latter  therefore  little  reliance  has  been  placed. 
In  the  present  monograph  two  chapters,  dealing  respec- 
tively with  Internal  Improvements  and  Local  Finance, 
were  omitted  because  of  limitations  of  space;  but  it  is 
hoped  they  may  be  published  at  some  future  time.  A 
"History  of  the  State  Debt  of  Ohio"  has  already  appeared 
in  the  Journal  of  Political  Economy,  April,  May,  June, 

g  1911.    Thanks  are  due  the  editor  of  the  American  Economic 
o 

'   Review  for  permission  to  reprint  part  of  an  article  entitled 

£    "Recent  Economic  Reforms  in  Ohio",  which  appeared  in 

September,  1911;  and  to  the  editor  of  the  American  Hi$- 

&     torical  Review,  for  permission  to  reprint  a  part  of  the 

article  "Taxation  of  the  Second  Bank  of  the  United  States 

(V) 

by  Ohio",  which  appeared  in  January,  1912. 

I  desire  publicly  to  record  my  obligations  to  Mr.  A.  S. 

Root,  the  Librarian  of  Oberlin  College,  to  Mr.  C.  B. 
cT^Galbreath,  the  former  State  Librarian  of  Ohio,  and  to  the 

Librarian  of  the  New  Jersey  State  Library ;  to  Mr.  E.  M. 

Fullington,  Auditor  of  State  of  Ohio ;  to  Mr.  E.  O.  Randall, 

President  of  the  Ohio  Archaeological  and  Historical 
^  Society;  and  to  Mr.  A.  R.  Foote,  President  of  the  Ohio 
~  State  Chamber  of  Commerce,  as  well  as  to  numerous  other 
o>  persons,  who  have  courteously  aided  me  with  information 

3 


300905 


or  access  to  publications.  Acknowledgements  are  also  due 
Professor  H.  B.  Gardner  for  suggestions  as  to  the  arrange- 
ment of  the  material  in  the  tables  on  pages  124-141,  and 
to  the  Carnegie  Institute  for  assistance  in  gathering 
material  for  this  study. 

ERNEST  LUDLOW  BOGART. 

University  of  Illinois, 
February  24,  1912. 


TABLE  OF  CONTENTS 

INTRODUCTION  :    TERRITORIAL  HISTORY  AND  FINANCE  Page 

Settlement  of  Ohio 9 

Financial  Organization  and  Taxation 10 

Economic   Conditions 16 

PART  I.     FINANCIAL  LEGISLATION  AND  ADMINISTRATION 

CHAPTER  L 

FINANCIAL  AND  ECONOMIC  HISTORY  OF  OHIO 

The  pioneer  state. 19 

Expansion  :  schools,  canals,  and  taxation /. . .  30 

Panic,  banking  problems,  and  economy 39 

The  Constitution,  currency,  and  corruption 47 

Material  development:  agriculture  and  transportation 51 

Slavery  and  Civil  War 56 

Labor,  immigration,  and  industry 59 

!    ;:,'   i    ,    . 

CHAPTER  II. 

RECEIPTS  AND  EXPENDITURE:    A  STUDY  OF  THE  BUDGET 

Early  period,  1803-1824 68 

Period  of  internal  improvements,  1825-1845 77 

Period  of  extravagance  and  defalcation,  1845-1860 82 

Civil  War  period 91 

Deficits  and  transfers 95 

Enforced  economy 99 

Increased  appropriations  and  insufficient  revenue 103 

Enlarged  revenue  and  increased  expenditure  for  public  institutions  106 

Conclusion    112 

Appendices :    Table  I,  State  collections  and  disbursements 118 

Table  II,  General  revenue  fund 124 

Table  III,  Expenditures 134 

CHAPTER  III. 

FINANCIAL  ADMINISTRATION  AND  BUDGETARY  PRACTICE 

I.  Treasury  Administration  and  Accountability 145 

The  canal  accounts 148 

The  reforms  of  1856  and  1857". 154 

The  defalcation  of  1857 161 

Establishment  of  the  independent  treasury  system 165 

5 


The    present    organization    and    administration    of    the    treasury 

department   172 

II.    Budgetary  Legislation  and  Practice 174 

The  Constitution  of  1802 174 

The  Constitution  of  1851 176 

Present  budgetary  practice 178 

PART  II.    THE  HISTORY  OF  TAXATION   IN   OHIO 
CHAPTER  IV. 

THE  GENERAL  PROPERTY  TAX  Page 

I.  The  Land  Tax,  1803-1825 , 181 

Assessment  and  collection  of  taxes 192 

Exemptions 194 

Sale  and  redemption  of  land 195 

Criticisms  of  the  existing  tax  system 200 

II.  The  General  Property  Tax,  1825-1851 202 

Revaluations 208 

Sale  and  redemption  of  delinquent  lands 212 

The  Kelley  law,  1846 214 

III.  The  General  Property  Tax  Under  the  Constitution  of  1851 221 

The  constitutional  provisions 221 

The  act  of  1852 223 

The  act  of  1859 229 

The  Civil  War  period 232 

The  act  of  1878 237 

The  tax  inquisitor  law 240 

The  tax  commission  of  1893 242 

Abolition  of  the  general  property  tax  for  state  purposes 246 

The  tax  commission  of  1906 248 

Recent  reforms 250 

CHAPTER  V. 

HISTORY  AND  TAXATION  OF  BANKS  AND  BANKING  Page 

History  and  taxation  of  banks  to  1819 257 

The  attempt  to  tax  the  Bank  of  the  United  States 260 

Struggle  over  note  issues,  1819-1854 269 

Regulation  of  the  banks,  1839-1850 276 

Bank  taxation 280 

Struggle  with  the  banks  over  taxation 283 

Crises  of  1854  and  1857,  and  condition  of  the  banks 286 

Renewed  struggle  over  taxation 289 

Compromise 293 

Organization  of  national  banks  and  their  taxation 296 

6 


CHAPTER  VI. 

HISTORY  AND  TAXATION  OF  RAILROADS 

Early  railroad  building 302 

State  and  local  aid 305 

Taxation  of  railroads,  to  1851 311 

Regulation  and  taxation,  1850-1866 3*5 

Construction  and  taxation  after  the  Civil  War 320 

Excise  taxation,  1893  to  date 323 

CHAPTER  VII. 

BUSINESS  AND  MISCELLANEOUS  TAXES  Page 

Lotteries 33O 

Banks. . .'. 330 

Sales  at  auction 331 

Income  tax  on  lawyers  and  physicians 332 

Tax  on  brokers 333 

Tax  on  merchants  and  manufacturers 334 

Insurance  companies 336 

Transportation  companies 339 

The  taxation  of  telegraph,  telephone,  and  express  companies 340 

Public  service  corporations 342 

Foreign  and  domestic  corporations 344 

Liquor  taxes 345 

Tax  on  cigarets 348 

Inheritance  taxes 348 

Miscellaneous  business  taxes  and  licenses 352 

Conclusion 352 

INDEX   355 


7   ' 


LIST  OF  OHIO  STATE  PUBLICATIONS 

i 

Adjutant  General,  Report  of.    In  Exec.  Doc.,  1860-1867. 

Archaeological   and    Historical    Society,    Annual   Report    of   Ohio   State. 

From   1885  to   1894  m  Exec.  Doc.;  since  1895  published  separately 

Publications  of,  at  irregular  intervals  since  1887. 
Attorney  General,  Annual  Report  of.     In  Exec.  Doc.,  1846 — date. 
Auditor  of   State,   Annual   Report  of.     In  Senate  and  House  Journals, 

previous   to    1836.     In   Exec.  Doc.,   1836-1889.     Published   separately 

since  1890. 
Canal  Commission,  Annual  Report  of.     In  Exec.  Doc.,  1822-1837;  1888- 

1895- 
Canal  Fund,  Annual  Report  of  Board  of  Commissioners  of.     1822,  1826. 

1829,  1830,  1831.     In  Exec.  Doc.,  1836-1851. 

Comptroller  of  Treasury,  Annual  Report  of.     In  Exec.  Doc.,  1858-1876. 
Debates  of  Constitutional  Convention  of  1851.     (2  vols.    Columbus,  Ohio, 

1851). 
Executive  Documents.   i836-date.     Previous  to  1836  executive  documents 

were  printed  in  the  Senate  and  House  Journals. 
Governors'    Messages.     In   Senate   and   House   Journals,    1803-1835.     In 

Exec.  Doc.,  i836-date. 

House  Journals.     Territorial,  1801-1802.     State,   i8o3-date. 
Immigration,  Annual  Report  of  Commissioner  of.     In  Exec.  Doc.,  1863- 

1869. 
Laws.     Territorial,    1791,    1792,   1795,   1798-1801.     State,   1803-1854,    1856 

1894,   1896,  1898,  1900,  1902-4,  1906,  1908-1910. 
Legislative  Practice,  Manual  of.     Irregular  since  1886. 
Public  Works,  Annual   Report  of  Board  of.     In  Exec.  Doc.,   1836-1853, 

1855-1895.     Published  separately  since  1896. 
Railroad  and  Telegraph  Commissioner,  Annual  Report  of.    In  Exec.  Doc.. 

1866-1879.    Published  separately  since  1880. 
Senate  Journals.    i8o3-date. 
Sinking  Fund,   Semi-Annual  Report  of  Commission  of.     In  Exec.  Doc., 

1852-1890. 

Statistics,  Annual  Report  of  Commissioner  of.    In  Exec.  Doc.,  1857-1868. 
Statutes.     Compilations:     Chase,  1788-1833,  3  vols. ;  Swan,  1841 ;  Curwen, 

1849;  Swan,  1854;  Curwen,  1833-1860,  4  vols.;  Swan  and  Critchfield. 

1860,  2  vols.;  Swan  and  Saylor,  1868;  Saylor,  1861-1875,  4  vols. 

Revised  Statutes,  1880,  1886,  1890,  1898,  1910. 
Tax  Commission,  Annual  Report  of.    In  Exec.  Doc.,  igio-date.    Published 

separately,   igio-date. 
Treasurer  of  State,  Annual  Report  of.     In  Senate  and  House  Journals, 

previous  to  1836.    In  Exec.  Doc.,  i836-date. 

8 


INTRODUCTION 
TERRITORIAL  HISTORY  AND  FINANCE. 

SETTLEMENT  OF  OHIO. 

The  permanent  occupation  and  settlement  of  Ohio  did 
not  begin  until  the  passage  of  the  Ordinance  of  1787  gave 
assurance  of  a  settled  form  of  government  for  that  terri- 
tory. The  first  band  of  immigrants,  comprising  the  van 
of  the  Ohio  company,  arrived  on  April  7,  1788,  at  the 
mouth  of  the  Muskingum  River,  where  they  formed  a  set- 
tlement which  they  called  Marietta.1  Soon  after  the  adop- 
tion of  the  Ordinance  Congress  had  organized  the  first  terri- 
torial government,  and  appointed  Arthur  St.  Clair  gover- 
nor and  commander  in  chief;  three  judges  were  also  ap- 
pointed. In  July,  1788,  Governor  St.  Clair  arrived  in  Ohio 
and  formally  established  the  first  form  of  civil  government 
in  the  territory.  Under  this  the  people  had  no  concern  in  the 
actual  business  of  government.  The  governor  and  judges 
were  appointed  first  by  Congress,  and  after  the  adoption  of 
the  federal  constitution  by  the  president.  The  whole  legisla- 
tive power  was  vested  in  these  officials,  but  it  was  limited 
only  to  the  adoption  of  such  laws  of  the  original  states  as 
might  be  suited  to  the  needs  of  the  new  territory.  In  fact, 
all  power,  legislative,  executive,  and  judicial,  was  concen- 
trated in  the  governor  and  judges,  and  in  its  exercise  they 
were  responsible  only  to  the  distant  federal  head.2 

The  first  acts  of  the  governor  were  the  erection  of 
Washington  county,  comprising  the  eastern  half  of  the 
present  state  of  Ohio,  the  establishment  of  a  system  of 
courts,  and  the  organization  of  the  militia.  In  1790  he 
organized  a  second  county,  Hamilton,  in  the  western  half 
of  the  present  state,  and  removed  the  seat  of  government 
to  Cincinnati.8  St.  Clair  and  the  judges  also  selected 
laws  for  the  use  of  the  territory,  and  enacted  some  original 

'I.  Schmucker,  Ohio  Statistics  (1876),  p.  15. 

'Chase,  Statutes  of  Ohio  (Cincinnati,  1833),  I,  18. 

*E.  O.  Randall,  in  Ohio  Arch,  and  Hist.  Soc.  Pub.,  X,  419. 


10  FINANCIAL  HISTORY  OF  OHIO  [10 

ones,  which  was  contrary  to  the  Ordinance.  Most  of  the 
legislation  concerned  the  organization  of  government,  but 
a  few  were  financial  in  their  character  and  may  be  briefly 
noted.  The  expenses  of  the  government  were  defrayed  in 
part  by  the  United  States;  but  for  the  most  part  were 
drawn  from  the  pockets  of  the  people  in  the  shape  of  fees.* 
Consequently  taxation  played  but  a  small  role  in  early 
territorial  finance. 

FINANCIAL   ORGANIZATION    AND   TAXATION 

On  August  1,  1792,  a  number  of  laws  were  promul- 
gated on  this  subject.  One  of  the  first  created  the  offices 
of  treasurer-general  of  the  territory  and  of  county 
treasurers,  enumerated  their  duties,  fixed  their  compensa- 
tion at  5  per  cent,  of  all  the  money  that  passed  through 
their  hands,  and  required  $1500  bonds.5  As  the  territorial 
expenses  were  met  either  by  the  federal  government  or  by 
special  fees,  the  finances  were  as  yet  almost  entirely  local. 
The  expenses  of  each  county  were  to  be  estimated  by  the 
court  of  quarter  sessions,  and  the  estimate  laid  before  the 
governor.8  The  amounts  needed  were  to  be  apportioned 
among  the  townships  by  commissioners  appointed  annually 
by  the  judges  of  the  courts  of  common  pleas.  The  commis- 
sioners were  to  list  male  persons  over  eighteen,  stocks  of 
cattle,  and  land  values  annually,  and  all  other  property 
that  might  affect  the  apportionment.  Assessors  were  also 
appointed  annually  by  the  judges,  who  were  to 

assess  the  individuals  of  their  town  ....  according  to  the  best  of 
their  judgment  in  just  proportion  to  their  wealth  in  the  county  and  ability 
to  pay  either  in  money  or  specific  articles  (§4). 

The  assessments  could  be  paid  either  in  money  or  in 
specific  articles  agreeable  to  the  public  use.  Duplicates 
of  the  tax  list  were  to  be  made  by  the  prothonotary  of  the 
court  of  common  pleas,  and  the  taxes  were  collected  by  the 
sheriff.  To  compel  the  payment  of  taxes  provision  was 

4Chase,  op.  cit.,  p.  18. 
territorial  Laws  of  1792,  ch.  25. 
•r.  L.,  ch.  26. 


11]  TERRITORIAL  HISTORY  AND  FINANCE  11 

made  for  the  arrest  of  delinquents,  and  if  necessary  the 
seizure  and  auction  of  their  property.  Other  acts  had  to 
do  for  the  most  part  with  the  regulation  of  fees.7  The 
first  financial  act  enacted  at  this  time  had  established  an 
annual  fee  of  $16  for  a  license  to  merchants,  traders,  and 
tavernkeepers,  of  which  $15  was  to  go  to  the  county  and  $1 
as  a  fee  to  the  commissioners  appointed  for  the  purpose  of 
licensing  them.8  Various  other  fees  were  established,  but 
they  belong  to  local  finance. 

In  1795  the  governor  and  judges  undertook  to  revise 
the  territorial  laws,  and  to  establish  a  complete  system  of 
statutory  jurisprudence,  by  adoption  from  the  laws  of  the 
original  states,  in  strict  conformity  to  the  provisions  of  the 
ordinance.9  Most  of  the  laws  adopted  at  this  time  were 
taken  from  the  statutes  of  Pennsylvania.  A  comprehensive 
act  "for  raising  county  rates  and  levies"  was  passed,10  but 
no  distinctively  territorial  tax  was  imposed  as  yet.  From 
this  time  to  the  organization  of  the  territorial  legislation  in 
1799,  there  were  no  further  acts  of  legislation,  except  ten 
laws  adopted  by  the  secretary  and  judges  in  1798.11  One 
of  these,  however,  was  for  our  purposes  a  most  important 
one,  as  it  levied  for  the  first  time  a  territorial  tax  on 
land.12  It  provided  for  commissioners  or  listers  in  each 
county,  to  be  appointed  by  the  judges  of  the  court  of 
quarter  sessions.  They  were  to  take  a  written  list  from 
each  land  holder  of  all  the  lands  he  claimed  within  the 
territory,  specifying  the  quantity  and  quality.  The  land 
was  then  to  be  divided  into  three  classes,  according  to 
quality;13  and  the  first  rate  land  should  be  taxed  at  85 

'Such  were  T.  L.,  ch.  36,  48,  81. 

*T.  L.,  ch.  24.  This  repealed  ch.  51,  which  had  allowed  $12  to  the 
county  and  $4  to  the  governor.  By  act  of  Dec.  6,  1800,  no  fees  were 
required.  T.  L.,  ch.  122. 

•Chase,  I,  26. 

T.  L.,  ch.  53- 

"Chase,  op.  cit.,  p.  27. 

"Act  of  May  i,  1798.     T.  L.,  ch.  90. 

"The  "land  shall  be  divided  into  three  classes  according  to  their 
quality  .  .  .  taking  into  view  the  surface  of  the  earth  as  well  as  the 
quality  of  the  soil". 


12  FINANCIAL  HISTORY  OP  OHIO  [12 

cents,  the  second  rate  at  60  cents,  and  the  third  rate  at  25 
cents  per  100  acres.14  Taxes  were  paid  to  the  territorial 
auditor,  or  to  the  sheriff  or  collector  of  the  proper  county. 
Clerks  of  the  peace  in  each  county  had  to  list  the  lands  of 
non-residents.  The  sheriff  of  each  county  was  made  the 
collector  of  taxes,  and  must  collect  them  after  August  1 
of  each  year.  If  the  taxes  were  not  paid,  the  collector  was 
directed  to  sell  at  public  auction  so  much  of  the  land  as 
would  pay  the  tax;  arrears  of  taxes  bore  10  per  cent, 
interest. 

In  the  meantime  the  population  of  the  territory  con- 
tinued to  increase  and  to  spread  out.  Before  the  end  of 
the  year  1798,  the  northwestern  territory  contained  a  popu- 
lation of  5000  free  male  inhabitants  of  full  age,  and  eight 
organized  counties.  The  people  were  now  entitled  under 
the  ordinance  to  a  change  in  the  form  of  government.  That 
instrument  provided,  that  upon  giving  proof  to  the  gov- 
ernment that  there  were  5000  free  males  of  full  age  in  the 
territory,  the  people  should  be  authorized  to  elect  repre- 
sentatives to  a  territorial  legislature.  This  privilege  was, 
however,  confined  to  freeholders,  in  fee  simple,  of  50  acres 
of  land  within  the  district.  No  others  were  entitled  to 
vote,  and  only  freeholders  in  fee  simple  of  200  acres  within 
the  district  were  eligible  as  representatives.  When  chosen, 
the  house  of  representatives  was  to  assemble  in  convention 
and  nominate  ten  freeholders  of  500  acres,  of  whom  the 
president  of  the  United  States  was  to  appoint  five,  who 
should  constitute  the  legislative  council.  Representatives 
were  to  serve  two,  and  councilmen  five  years.  The  two 

"The  rates  were  frequently  changed,  according  to  the  needs  of  the 
territorial  government,  as  shown  in  the  following  table.  The  act  of  May  I, 
1798,  which  was  adopted  from  the  statutes  of  Kentucky,  laid  the  tax  on 
every  "100  acres  of  unimproved,  uncleared  land" ;  those  of  Dec.  19,  1799, 
and  Dec.  9,  1800,  simply  taxed  "100  acres  of  land". 

YEAR.  FIRST  CLASS.  SECOND  CLASS.  THIRD  CLASS. 

1/98 $.85  $.60  $.25 

1799 30  .20  .10 

I800 85  .60  .25 

1801 55  .35  -I/ 


13]  TERRITORIAL   HISTORY  AND   FINANCE  13 

houses  were  to  constitute  a  territorial  legislature,  with 
power  to  make  any  laws  not  repugnant  to  the  national 
constitution  or  to  the  ordinance  of  1787.  The  judges  were 
thenceforth  to  be  confined  to  purely  judicial  functions. 
The  governor  was  to  retain  his  appointing  power,  his  gen- 
eral executive  authority,  and  to  have  an  absolute  negative 
upon  all  legislative  acts.  The  power  of  the  governor 
under  the  new  order  was  in  fact  more  absolute  than  under 
the  old.15 

On  September  24,  1799,  the  first  territorial  legislature 
met  for  what  proved  to  be  a  lengthy  session,  during  which 
the  finances  of  the  territory  were  more  carefully  organized. 
To  meet  territorial  expenditures  the  legislature  created 
two  funds — a  contingent  and  a  general  fund;  the  latter 
was  composed  of  specific  appropriations,  and  the  limit  of 
all  expenditures  was  placed  for  the  year  at  $5000 ;  the  con- 
tingent fund  was  largely  though  not  wholly  left  to  the 
order  of  the  governor.10  The  office  of  territorial  auditor 
of  public  accounts  was  created,  in  addition  to  that  of 
treasurer.17  He  was  given  the  duty  of  receiving  and 
liquidating  authorized  bills,  subject,  however,  to  appeal. 
The  salary  of  the  treasurer  was  fixed  at  $400  and  that  of 
the  auditor  at  $450.  Some  of  the  provisions  of  the  act  are 
especially  interesting  for  the  light  they  throw  on  the  crude 
conditions:  auditor's  certificates  could  be  received  in  pay- 
ment of  taxes ;  the  auditor  and  treasurer  were  fined  $1000 
if  they  speculated  in  audited  certificates,  seeming  to  in- 
dicate depreciation  and  fluctuation;  forgery  of  auditor's 
certificates  was  to  be  punished  with  death.  A  regular 
system  of  taxation  was  also  established.  The  tax  for 
territorial  purposes  was  levied  upon  lands;  that  for  county 
purposes  upon  persons,  personal  property,  and  houses  and 

"Chase,  op.  cit.,  p.  27. 

"Chase,  I,  285.  In  1800,  only  $3000  was  allowed  for  the  contingent 
fund,  but  the  general  fund  was  net  limited.  Chase,  I,  309.  In  1802  the 
contingent  fund  was  made  $12,000,  but  was  withdrawn  from  the  order  of 
the  governor,  being  put  under  the  entire  control  of  the  auditor  of  public 
accounts ;  no  limit  was  placed  on  the  other  fund.  Chase,  I,  349. 

"Act  of  Dec.  2,  1799.    T.  L.,  ch.  99.    Chase,  I,  231. 


14  FINANCIAL  HISTORY  OP  OHIO  [14 

lots.  During  this  session  a  bill  authorizing  a  lottery  for  a 
public  purpose,  passed  by  the  council,  was  rejected  by  the 
representatives.18  The  legislature  also  fixed  their  own  pay 
at  $2.00  a  day,  and  $3.00  mileage  for  every  fifteen  miles 
traveled.19 

On  December  19  the  governor  terminated  the  first 
session  of  the  legislature.  He  vetoed  eleven  acts,  which 
were  disapproved  for  various  reasons,  but  mainly  because 
the  governor  claimed  that  the  power  exercised  in  enacting 
them  was  vested  by  the  Ordinance,  not  in  the  legislature, 
but  in  himself.  This  free  exercise  of  the  veto  power  excited 
much  dissatisfaction  among  the  people,  which  was  strength- 
ened by  the  controversy  with  the  legislature  as  to  their 
respective  powers.  As  a  consequence  the  veto  power  was 
denied  the  governor  when  the  first  state  constitution  was 
adopted  in  1803.  In  other  ways  too  the  conflict  between 
Governor  St.  Clair,  who  was  an  extreme  Federalist,  and 
the  adherents  of  the  Republican  party  influenced  to  a 
noticeable  degree  the  character  of  the  laws.  The  demo- 
cratic environment  of  a  pioneer  settlement  made  the  main- 
tenance of  an  aristocratic  or  paternalistic  form  of  govern- 
ment impossible,  and  the  desire  for  political  independence 
and  home  rule  culminated  in  the  demand  for  statehood. 
During  the  territorial  period,  Ohio  constituted  a  constant 
item  of  expense  to  the  federal  government,  in  connection 
with  the  land  sales,  the  salaries  of  civil  officials,  and  the 
pacification  of  the  Indians.20  In  territorial  finance  and 
government  there  was  a  steady  pressure  towards  decen- 
tralization, due  both  to  difficulty  of  communication  and 
wide  dispersion  of  a  sparse  population  over  a  large  terri- 
tory, and  to  the  consequent  greater  economy  of  local  admin- 
istration of  affairs. 

Money  was  very  scarce  in  the  territory  and  revenue 
for  territorial  purposes  was  raised  with  difficulty,  so  that 
great  economy  was  necessary  to  meet  even  the  modest 

"Chase,  I,  29. 

"T.  L.,  ch.  114. 

"Winsor,   Westward  Movement,  p.  504. 


15]  TERRITORIAL  HISTORY  AND  FINANCE  15 

necessary  expenses.  The  revenue  was  raised  chiefly  by  a 
tax  on  uncultivated  lands,  which  were  in  great  part  the 
property  of  non-residents.  This  called  forth  a  protest  from 
Governor  St.  Clair,  with  a  recommendation  that  new 
sources  of  revenue  be  sought,  as  there  was  nothing  in  the 
treasury  and  the  revenue  had  not  been  as  productive  as 
contemplated.21  The  House  answered  with  a  resolution 
defending  the  existing  methods  and  expressing  a  hope  that 
the  present  revenues  would  discharge  all  the  demands 
against  the  territorial  treasury.22  An  acrimonious  corre- 
spondence now  followed,  in  which  the  governor  estimated 
that  there  would  be  a  deficit  at  the  end  of  the  year  of 
$5,419,  which  would  have  to  be  met  by  the  "wretched  ex- 
pedient" of  a  new  emission  of  bills  of  credit.23  On  the 
other  hand,  the  joint  committee  appointed  to  examine  the 
books  and  accounts  of  the  territorial  treasurer  and  of  the 
auditor  of  public  accounts,  headed  by  Thomas  Worthing- 
ton,  a  political  opponent  of  St.  Clair,  reported  that  there 
would  be  a  balance  of  $8,978  in  the  treasury  to  meet  cur- 
rent, expenditures,  which  would  be  ample  for  all  needs.24 
The  amount  of  assessed  taxes  for  the  year  1800  was  $19,241 
and  for  1801  was  $29,114,  but  considerable  deductions  had 
to  be  made  from  these  sums  on  account  of  double  entries 
of  land,  collection  fees,  etc.  Audited  certificates  in  circula- 
tion, not  yet  redeemed,  were  estimated  at  $1649. 

During  the  whole  of  the  territorial  period  there  was  a 
struggle  to  make  ends  meet,  but  it  was  accomplished,  and 
when  Ohio  became  a  state  the  finances  and  the  revenue 
laws  were  in  a  fairly  satisfactory  condition. 

It  will,  no  doubt  [wrote  the  governor  to  the  legislature28]  afford  you  much 
consolation  on  receiving  from  the  proper  officers,  a  statement  of  our 
finances,  in  discovering  that  the  present  revenue,  if  wholly  reserved  for 
state  purposes,  is  adequate  to  all  the  necessary  exigencies  of  government ; 
and  that  by  a  true  economy,  devoid  of  parsimony,  the  public  faith  and 
credit  may  be  maintained. 

MGov.  address,  Nov.  26,  1801.    House  Journal,  1801,  p.  14. 

"Ho.  /.,  1801,  p.  30. 

"Ibid.,  p.  34- 

"Ibid.,  pp.  52-54. 

"Gov.  mess.,  Senate  Journal,  1803,  p.  10. 


16  FINANCIAL  HISTORY  OF  OHIO  [16 

The  outstanding  auditor's  certificates  were  estimated  at 
$1758,  the  taxes  for  the  year  1802  at  $26,098,  and  the 
available  balance  for  current  expenses  at  $13,952.26  The 
examining  committee,  appointed  for  that  purpose,  reported 
that  the  books  of  the  auditor  and  treasurer  were  kept  in 
good  order  and  with  accuracy,  and  that  no  monies  had 
been  expended  without  legal  authority. 

ECONOMIC    CONDITIONS. 

The  economic  environment  and  the  early  hardships  of 
the  pioneer  settlers  in  Ohio  will  perhaps  be  made  clearest 
by  citing  a  few  facts  as  to  the  industrial  and  financial 
conditions  during  the  territorial  period.27  The  first 
colonists  came  by  water,  for  there  were  no  roads  through 
the  forests.  Indian  trails  were  followed  when  land  travel 
was  necessary,  and  these  were  gradually  widened  into 
bridle  paths.  Later,  with  the  growth  of  population,  roads 
were  cut  through  between  the  five  or  six  centers  of  settle- 
ment, but  judged  by  present  standards  they  were  miserable, 
hub-deep  in  mud,  dangerous  to  passengers,  and  costly  for 
transportation  of  freight.  On  the  rivers,  which  were  the 
favorite  means  of  communication,  where  possible  packet 
systems  grew  up,  the  first  of  which  was  in  operation  as 
early  as  January  11,  1799.28  Numerous  boats  of  various 
descriptions  were  built  for  the  freight  business  on  the  Ohio 
River  and  the  tributary  streams. 

Money  was  not  to  be  had  in  the  earlier  days  of  the 
territory,29  and  exchange  was  conducted  by  barter  or  the 
use  of  some  primitive  substitute  for  money.  Such  in- 
dustries as  existed  were  mainly  local  in  character,  or  were 
carried  on  within  the  family.  The  tax  laws  provided  that 
money  or  "articles  agreeable  to  the  public  use"  might  be 

MRep.  of  joint  com.  to  examine  the  accounts  of  the  auditor  and 
treasurer.  Sen.  J.,  1803,  pp.  25-26. 

"Most  of  the  facts  brought  together  in  the  next  three  or  four  para- 
graphs were  collected  by  former  student  of  mine,  Mr.  E.  C.  Dye,  of 
Portland,  Ore. 

"Cist,  Cincinnati  in  1851  (ed.  1859),  p.  156. 

"John  Sherman,  in  Ohio  Centennial  Celebration,  p.  248. 


17]  TERRITORIAL  HISTORY  AND  FINANCE  17 

paid  for  taxes.30  The  act  of  1792,  in  providing  for  fees, 
states  that  since  a  dollar  piece  varied  in  its  real  value  in 
the  several  counties,  the  fee  taker  could  for  every  one  cent 
of  the  act  demand  one  quart  of  Inidan  corn.  Auditor's 
certificates  circulated  as  money,  and  in  1795  the  death 
penalty  was  provided  for  the  forgery  of  auditors'  certifi- 
cates and  other  public  securities.31  After  the  treaty  of 
Greenville  comparative  security  and  prosperity  were 
brought  about  by  the  removal  of  fears  of  Indian  attack, 
and  the  rapid  influx  of  a  population  of  greater  means 
brought  in  more  money. 

The  domestic  industries  provided  leather  and  home- 
spun clothes.  Log  houses  and  rough  furniture  were  con- 
structed with  the  use  of  ax,  auger,  hammer,  and  saw.32 
Wheat,  corn,  whisky,  maple  sugar,  eggs,  butter,  hogs,  sheep, 
and  fresh  game  formed  the  staples  of  their  food  supply. 
There  was  one  commodity  which  home  industry  could  not 
supply,  however;  one  locality  along  the  Scioto  River  for 
a  time  had  almost  a  monopoly  of  its  production.  This 
was  salt.  The  demand  was  great,  and  people  traveled  long 
distances  to  get  it,  and  paid  enormous  prices.33  Salt  at 
the  Scioto  salt  works  sold  for  $3  to  $4  per  bushel.  After 
being  transported  a  hundred  miles  the  same  amount  com- 
manded $6  to  $7.  Salt  in  Trumbull  county,  in  the  north- 
eastern part  of  the  state,  sold  for  $20  a  barrel,  and  one 
man  in  Cleveland  paid  $40  for  a  barrel  and  then  spent 
four  days  in  cutting  out  a  road  through  the  dense  forest 
in  order  to  haul  his  purchase  to  his  objective  point  about 
twenty-five  miles  distant.  One  bushel  of  salt,  worth  $3.20 
at  the  salt  springs,  would  purchase  on  the  spot  ten  bushels 
of  wheat  at  32c,  which  was  an  exceptionally  high  price  for 
the  latter,  or  three  deer  at  $1.00  apiece.34  But  the  price 
of  iron  completely  eclipsed  all  this,  for  the  mere  carriage 
of  a  ton  from  Baltimore  to  Ohio  cost  $200,  or  ten  cents  a 

"E.g.  Act  of  1792,  Chase,  Ohio  Statutes,  I,  118. 

"Act  of  1795.    Chase,  I,  198. 

"Curtis,  in  Ohio  Arch,  and  Hist.  Soc.  Publ,  X,  243. 

"Atwater,  History  of  Ohio,  p.  11. 

"John  Sherman  in  O.  C.  C.,  p.  248. 


18  FINANCIAL  HISTORY  OF  OHIO  [18 

pound.35  Every  community  had  its  mill,  built  beside  a 
stream,  to  grind  grist  and  flour.  The  first  mill  in  Ohio 
seems  to  have  been  the  Wolf  Creek  mill,  built  in  1789, 
about  a  mile  above  its  junction  with  the  Muskingum 
River.36  Saw  mills  were  also  erected,  and  later  fulling 
mills  for  textiles.  At  the  end  of  this  period  grazing  be- 
came quite  an  industry,  and  considerable  profit  was  made 
through  the  herds  of  cattle  and  horses,  driven  over  the 
mountains  to  the  Atlantic  coast;  the  first  such  drive  was 
made  in  1805. 

Wages  in  Ohio  during  the  territorial  period  were  not 
high.  A  school  teacher  who  made  $10  a  month  was  con- 
sidered well-paid;37  the  soldiers  in  St.  Glair's  army  got 
$2.10  for  the  same  period.38  Constables  received  75  cents 
and  grand  jurors  60  cents  a  day;  a  coroner  was  allowed 
$3.00  for  every  dead  body  he  viewed  and  his  jurors  50  cents 
apiece.39  Surveyors,  as  skilled  laborers  in  great  demand, 
obtained  the  highest  wages  of  all,  and  received  amounts 
ranging  from  $3.50  a  day  for  the  compass  or  head  man 
down  to  $1.25  for  his  flag  man.  The  auditors  of  their 
accounts  were  paid  $2.00  to  $2.50  per  day.  The  auditor 
of  the  Northwest  Territory  received  $450  a  year,  and  the 
treasurer  $400.40  The  general  system  of  fees  prevalent  in 
the  territory  was  likewise  proportionately  low;  for  in- 
stance, the  justice  of  peace  got  5  cents  a  person  for  admin- 
istering oaths.  The  county  commissioners  of  assessment 
were  allowed  60  cents  a  day  and  mileage  of  2  cents  a  mile.41 


"Atwater,  op.  cit.,  p.  n. 

MSee  my  Economic  History  of  the  United  States,  p.  134. 

"Mag.  of  Amer.  Hist.,  XVI,  5. 

"Roosevelt,  Winning  of  the  West,  IV,  30. 

"Chase,  Ohio  Statutes,  I,  133. 

"Ibid.,  I,  154. 

"Terr.  Laws,  di.  36.    Aug.  i,  1792. 


PART 


CHAPTER  I 
ECONOMIC  AND  FINANCIAL  HISTORY  OF  OHIO. 

THE  PIONEER  STATE. 

Ohio  was  admitted  to  the  Union  in  1803,1  and  the 
first  session  of  the  first  legislature  of  the  newly  formed 
state  met  at  Chillicothe  on  March  1,  1803.  The  governor 
and  Senate  repaired  to  the  chamber  of  the  House  of  Rep- 
resentatives, where  the  governor  delivered  his  opening 
message  in  person;  in  1806-7  he  sent  his  written  message, 
which  was  read,  perhaps  in  imitation  of  the  practice  estab- 
lished by  President  Jefferson.  In  his  message  for  1803 
the  governor  reported  that  "the  present  revenue,  if  wholly 
reserved  for  state  purposes,  is  adequate  to  all  the  necessary 
exigencies  of  government."2  One  of  the  first  tasks  of  the 
legislators  was  to  fix  the  pay  for  their  own  services,  which 
they  did  by  conscientiously  reducing  the  rate  to  two-thirds 
of  what  it  had  been  for  the  territorial  legislature,  or  the 
modest  sum  of  $2.00  a  day  with  a  mileage  allowance  of 
$2.00  for  every  25  miles  traveled  in  reaching  the  state 

'By  act  of  April  30,  1802,  Congress  directed  the  creation  of  the  state 
of  Ohio.  Ohio  adopted  a  constitution,  and  formed  the  state,  on  Nov.  29, 
1802.  Congress  recognized  the  state  as  a  member  of  the  Union,  by  act 
of  Feb.  19,  1803. 

2The  first  governor's  message  after  Ohio  became  a  state  may  be  found 
in  Sen.  J.,  1803,  p.  10,  or  in  Ho.  J.,  p.  n. 


20  FINANCIAL  HISTORY  OF  OHIO  [20 

capital.3  The  tax  laws  of  the  territory  were  slightly  modi- 
fied, and  continued  in  force.  An  auditor  and  a  treasurer 
of  state  were  provided  for  by  continuing  the  territorial 
officials  with  the  same  functions.4  In  addition  to  his  other 
duties,  the  latter  officer  was  charged  with  the  receipt  of 
three  per  cent,  of  the  proceeds  from  the  sale  of  the  public 
lands,  to  be  paid  by  the  United  States.  Laws  were  passed 
for  leasing  the  school  lands  and  the  salt  reservations.5 

As  might  be  expected  in  a  pioneer  state  such  as  Ohio 
then  was,  all  the  legislators  were  engaged  in  agricultural 
pursuits.  To  them  no  object  was  more  important,  and 
few  absorbed  more  of  their  time  and  attention  than  road 
legislation.  Indeed  one  of  the  terms  upon  which  Ohio 
entered  the  Union  was  that  five  per  cent  of  the  proceeds 
from  the  sale  of  public  lands  within  the  state  should  be 
set  aside  for  the  building  of  roads.  It  was  later  agreed 
that  three  per  cent,  should  be  granted  to  the  state  for  the 
construction  of  common  highways  in  the  various  counties, 
and  the  other  two  per  cent,  be  used  in  the  building  of  a 
national  road  from  tide  water  to  Ohio.  Most  of  the 
early  roads  in  the  state  were  built  over  the  old  portage 
ways  between  waterways,6  thus  showing  the  importance  of 
the  portage  in  the  pioneer  period  of  development.  By 
June,  1805,  some  1030  miles  of  road  had  been  built  out  of 

3The  pay  of  members  of  the  general  assembly  for  the  first  quarter  of 
the  nineteenth  century  was  fixed  as  follows : 

Dec.      19,  1799 ....$3.00  a  day  and  $3.00  mileage  for  15  mi.  travel 

Jan.         i,  1802 3.00  a  day  and     3.00  mileage  for  20  mi.  travel 

March  24,  1803 2.00  a  day  and    2.00  mileage  for  25  mi.  travel 

Feb.      16,  1810 2.00  a  day  and     2.00  mileage  for  25  mi.  travel 

Feb.      18,  1816 3.00  a  day  and    3.00  mileage  for  25  mi.  travel 

Dec.       19,  1821 2.00  a  day  and    2.00  mileage  for  25  mi.  travel 

Dec.      29,  1823 3.00  a  day  and    3.00  mileage  for  25  mi.  travel 

The  act  of  Feb.  18,  1816,  also  provided  for  raising  other  salaries, 
which  were  fixed  as  follows:  judges  of  supreme  court,  $1200;  governor, 
$1200;  secretary  of  state,  $800;  president  of  court  of  common  pleas,  $1000; 
auditor,  $1200;  treasurer,  $700. 

*Act  of  April  15,  1803. 

'Chase,  I,  36. 

'E.g.  between  Cayuhoga  and  Tuscarora  rivers.    Sen.  J.  1803,  p.  63. 


21]  ECONOMIC  AND  FINANCIAL  HISTORY  21 

the  proceeds  of  the  3  per  cent,  fund.7  A  great  deal  of 
time  was  taken  up  in  the  discussion  of  roads  and  the  best 
use  of  the  3  per  cent,  fund,  and  many  local  and  temporary 
acts  were  passed.  Yielding  to  the  pressure  from  every 
quarter,  the  legislature  dissipated  the  fund  by  distributing 
it  among  the  counties,  no  one  of  which  secured  enough  to 
effect  any  large  or  permanent  improvements.  That  good 
roads  were  necessary  if  trade  were  to  be  developed  and 
Ohio  dispose  of  her  surplus  products  in  the  eastern  markets 
was  evident.  A  great  stimulus  was  given  to  the  movement 
by  the  first  successful  attempt  to  drive  cattle  from  Ohio 
across  the  Alleghenies,  which  was  made  in  1805.  Of  the 
68  head,  22  were  disposed  of  at  Morefield,  Va.,  and  the 
remainder  were  driven  to  Baltimore,  where  they  were  sold 
at  a  net  profit  of  $31.77  per  head.8 

In  December,  1803,  the  second  general  assembly  met. 
During  this  session  the  revenue  system  of  the  state  was 
simplified  and  improved.  The  main  reliance  for  revenue 
continued  to  be  upon  lands.  The  burden  of  the  land  tax 
was  borne  in  great  part  by  non-residents,  who  had  no 
property  of  any  other  kind  in  the  state,9  but  it  had  the 
desirable  result  of  hastening  the  transfer  of  lands  so  held 
into  the  hands  of  resident  proprietors.  Two-thirds  of  the 
tax  were  paid  into  the  state  treasury,  and  one-third  into 
the  several  county  treasuries.  County  commissioners  and 
township  trustees  were  also  authorized  to  assess  taxes  for 
certain  purposes  within  their  respective  limits.  To  en- 
courage immigration  a  law  was  passed  at  this  session  to 
enable  aliens  to  acquire  and  hold  land  within  the  state, 
and  granting  them  the  same  proprietary  rights  as  native 
citizens. 

Burr's  reputed  effort  to  lead  an  insurrection  in  the 
western  states  against  the  federal  government  aroused 
considerable  exictement  in  Ohio,  but 

TS>».  /.  1805-6,  p.  25. 

*L.  N.  Bonham,  American  Live  Stock,  in  Depew :  One  Hundred  Years 
of  American  Commerce,  I,  225. 
'Chase,  I,  37. 


22  FINANCIAL  HISTORY  OF  OHIO  [22 

except  this  event  [wrote  Chase,  the  legal  historian  of  early  Ohio10]  the 
period  now  under  review  was  marked  by  few  striking  or  important 
incidents.  The  attention  of  the  general  assembly  was  chiefly  bestowed 
on  local  legislation.  The  erection  of  new  counties,  and  the  incorporation 
of  towns,  banks,  manufacturing  companies,  academies,  and  religious 
societies,  indicated  the  rapid  progress  of  the  state  in  population,  wealth, 
and  character. 

Some  of  the  early  legislation  is  of  great  interest,  as 
showing  the  minute  regulation  of  industry  that  was 
thought  necessary  at  this  time,  even  in  a  primitive  com- 
munity. An  act  of  January  12,  1805,  fixed  the  rates  of 
toll  for  grinding :  for  wheat,  rye,  or  other  grain,  the  charge 
was  one-tenth;  for  corn,  one-eighth,  etc.11  By  act  of 
February  20,  1805,  provision  was  made  for  the  inspection 
of  certain  articles  of  exportation.12  This  act  provided  for 
the  appointment  of  inspectors  in  each  county  "to  inspect 
or  pack  all  wheat  or  rye  flour,  Indian  corn  or  buckwheat 
meal,  biscuit,  butter,  hogs'  lard,  pork  or  beef."  The  in- 
spectors were  to  be  paid  by  fees,  as,  for  example,  three 
cents  for  each  barrel  of  flour;  and  articles  were  to  be 
branded  by  them  after  packing  or  inspecting,  if  satis- 
factory. The  law  even  described  and  prescribed  the  kind 
of  barrel,  firkin,  etc.  This  is  interesting  not  only  as  an 
illustration  of  the  persistence  of  mercantilist  notions,  but 
also  as  showing  the  existence  and  character  of  an  export 
trade  from  Ohio  in  agricultural  products.  Probably  the 
difficulty  of  enforcing  such  an  act  under  the  conditions 
existing  at  that  time  made  it  a  dead  letter. 

In  his  message  of  1809  the  governor13  congratulated 
the  legislature  upon  the  uninterrupted  state  of  prosperity 
which  the  state  had  thus  far  enjoyed  from  the  beginning. 
But  an  early  act  of  the  legislature  thus  felicitated  seemed 
to  indicate  some  degree  of  financial  stringency  and  lack 
of  sufficient  money  for  the  use  of  the  community.  The 

"Statutes  of  Ohio,  I,  38. 
11O.  L.,  1805,  ch.  20. 

aO.  L.,  1805,  ch.  10,  Cf.  also  act  of  Jan.  9,  1802,  in  Chase,  Ohio  Stat., 
I,  ch.  151. 

"Gov.  Mess.  1809,  p.  43. 


•23]  ECONOMIC  AND  FINANCIAL  HISTORY  23 

auditor  was  required  to  issue  bills  for  even  sums  of  $20, 
$10,  and  $5  in  payment  of  accounts  due  individuals  by  the 
state;  for  any  sum  less  than  $5,  a  bill  for  the  "precise 
balance  of  account"  was  to  be  drawn.14  These  treasury 
warrants  were  intended  to  circulate  and  to  serve  as  cur- 
rency, and  they  seem  to  have  served  this  purpose  very 
well.  By  1813  the  number  of  banks  had  increased  and  the 
necessity  for  this  form  of  currency  was  not  so  pressing; 
accordingly  the  auditor  was  authorized  to  draw  a  single 
warrant  in  settlement  of  any  account,  with  the  consent 
of  the  person  to  whom  it  was  due.15  In  the  following  year 
it  was  provided  that  auditors'  certificates  should  no  longer 
draw  interest.16 

The  progress  of  the  state  in  culture  and  wealth  is 
evidenced  by  the  fact  that  in  1810  there  were  fourteen 
newspapers  published  in  Ohio.17  In  the  same  year  the 
first  blast  furnace  in  the  state  was  built  and  operated  in 
Summit  county.  Efforts  now  began  to  be  made  to  develop 
manufactures,  and  in  his  message  for  1811  the  governor 
adverts  to  the  desirability  of  granting  legislative  aid  for 
this  purpose. 

To  this  end  [he  wrote]  some  encouragement  for  the  raising  and  improving 
of  the  breed  of  sheep,  and  granting  certain  privileges  to  individuals  or  asso- 
ciations for  prosecuting  the  most  useful  manufactures,  would  not  be 
unworthy  of  the  attention  of  the  legislature.18.  [In  the  following  year  he 
recurred  to  the  subject:]  In  order  to  encourage  domestic  manufactures, 
upon  extensive  plans,  "an  act  authorizing  incorporations  for  manufactur- 
ing purposes",  would  be  useful,  that  capitalists  might  associate,  and  have 
the  regulation  of  their  funds  established  in  some  degree  under  the  sanction 
of  law.1* 

The  trade  down  the  Ohio  and  Mississippi  rivers  was 
expanding  during  this  period,  and  simple  manufactures 
were  beginning  in  the  Ohio  valley.  While  the  earlier  ship- 
ments had  consisted  only  of  raw  agricultural  products, 

"Act  of  Feb.  18,  1809. 
"Act  of  Feb.  9,  1813. 
"Act  of  Feb.  ii,  1814. 
"Ryan,  History  of  Ohio,  p.  67. 
"Gov.  Mess.  Ho.  /.,  1811,  p.  10. 
"Ho.  /.,  1812,  p.  12. 


24  FINANCIAL  HISTORY  OP  OHIO  [24 

they  later  were  subjected  to  some  process  of  treatment,  and 
were  shipped  in  the  form  of  pork,  flour,  etc.  Soon  after- 
wards simple  manufactured  articles,  such  as  bagging, 
rope,  twine,  candles,  glass,  and  iron,  began  to  appear,  and 
thereafter  became  increasingly  important.20  The  character 
of  Ohio's  manufacturing  industries  and  ambitions  at  this 
time  is  probably  gained  most  clearly  from  the  list  of  tax- 
able property  enumerated  in  the  tax  law  of  1831.  In  1795 
water,  fulling,  and  oil  mills,  boats  of  twenty  barrels  bur- 
den and  upwards,  "and  any  other  property  producing 
yearly  incomes,"  had  been  subjected  to  local  taxation.21 
But  in  1831  the  list  was  considerably  amplified  and  was 
made  to  include  the  following:22 

all  grist,  oil  and  saw  mills ;  all  manufactories  of  iron,  glass,  paper,  clocks 
and  nails ;  all  distilleries,  breweries  and  tanneries ;  all  iron,  brass  and 
copper  f ounderies ;  all  money  loaned  at  interest ;  all  stocks  or  capital 
invested  in  steam-boats ;  all  pleasure  carriages  with  two  or  four  wheels.23 

In  1811  there  occurred  an  event  of  revolutionary 
importance  in  its  effect  upon  the  subsequent  development 
of  Ohio :  this  was  the  introduction  of  the  steamboat  upon 
the  Ohio  River.  Not  until  four  years  later,  however,  did 
it  succeed  in  making  the  trip  up  the  Mississippi  Kiver 
against  the  swift  current.  With  that  event  began  the  era 
of  successful  steam  navigation  on  the  Ohio.  It  is  impossible 
to  give  the  number  of  steamboats  in  Ohio  alone,  but  the 
total  number  on  western  rivers  increased  rapidly,  from 
14  in  1815  to  200  in  1829,  and  450  in  1842.  Following 
the  example  of  New  York,  which  had  granted  Livingston 
and  Fulton  a  monopoly  of  the  Hudson  River,  the  state  of 
Louisiana  had  likewise  granted  them  a  monopoly  of  the 

20See  my  Economic  History  of  the  United  States,  p.  178. 

"Chase,  I,  168. 

"Chase,  II,  1476. 

"A  curious  communication  from  one  John  Geo.  Baxter,  a  textile 
manufacturer  of  Philadelphia,  Pa.,  was  printed  in  the  Senate  Journal  for 
1808  (p.  20),  in  which  the  writer  urged  upon  the  Ohio  legislature  the 
desirability  of  establishing  textile  mills  for  the  purpose  of  giving  employ- 
ment to  the  inmates  of  penitentiaries.  "My  weavers,"  he  wrote,  "who 
are  all  women,  weave  from  15  to  20  yards  of  cotton-bagging  per  day,  or 
from  50  to  60  yards  of  girth-webbing  per  day." 


25]  ECONOMIC  AND  FINANCIAL  HISTORY  25 

lower  waters  of  the  Mississippi.  This  limitation  upon 
freedom  of  navigation  was  the  occasion  of  much  injury  and 
bitterness  to  steamboat  owners  and  shippers  in  the  Ohio 
valley  as  is  evidenced  by  a  resolution,24  passed  in  1816  by 
the  Ohio  House  of  Representatives,  setting  forth  the  evils 
inflicted  upon  navigation  by  the  attempt  to  enforce  the 
monopoly,  and  instructing  the  Ohio  members  of  Congress 
to  endeavor  to  secure  a  settlement  of  the  controversy.25 

The  interests  of  Ohio  were  too  vital  and  the  matter 
too  important  not  to  resist  such  pretensions  as  those  of 
New  York  and  Louisiana,  and  the  state  did  her  best  to 
protect  the  interests  of  her  citizens.  An  act  of  1822  pro- 
hibited the  landing  of  passengers  on  the  shores  of  Ohio 
[i.  e.  of  Lake  Erie]  from  any  boat  which 

shall  claim  the  right  and  privilege  to  navigate  so  much  of  the  waters  of 
Lake  Erie,  as  is  within  the  jurisdiction  of  the  State  of  New  York,  under 
color  of  any  law  of  said  state,  granting  the  exclusive  right  of  navigation 
to  Robert  R.  Livingston  and  Robert  Fulton.26 

Further  reprisals  \vere  rendered  unnecessary  by  the  deci- 
sion of  the  Supreme  Court  in  the  celebrated  case  of  Gibbons 
v.  Ogden,  which  threw  open  the  waters  of  the  Hudson  to 
free  navigation,  and  by  implication  also  those  of  the 
Mississippi  and  other  rivers.  A  considerable  stimulus 
was  thereby  given  to  steamboat  navigation  in  Ohio. 

When  the  legislature  met  in  1813  war  had  been  de- 
clared between  England  and  the  United  States.  Through- 
out the  whole  of  this  contest,  the  scene  of  which  lay  at 
times  upon  her  very  border,  the  conduct  of  Ohio  was 
eminently  patriotic  and  honorable.27  She  took  occasion  at 
this  time  to  express  her  position  in  no  uncertain 
language  :28 

Impressed  with  a  full  conviction,  that  the  war  in  which  this  nation  is 
involved,  is,  on  our  part,  just  and  necessary;  that  the  course  pursued  by 
the  administration,  in  recommending  the  measure,  and  in  its  mild,  con- 
ciliatory and  continued  efforts  to  secure  to  this  nation  an  honorable  peace, 

*Ho.  J.,  1816,  pp.  371-373- 
*Ho.  J.,  1816,  p.  371. 
"Act  of  Feb.  i,  1822. 
"Chase.  I.  41. 
nSen.  J.,  1813,  pp.  115-116. 


26  FINANCIAL   HISTORY  OF  OHIO  [26 

merits  the  entire  approbation  of  this  great  assembly;  and  that  not  only 
the  honor  and  dignity  of  this  people,  but  its  continuance  as  a  free  and 
independent  nation,  depends  upon  a  vigorous  prosecution  of  the  war — 
therefore, 

Resolved  by  the  general  assembly  of  the  state  of  Ohio,  That  in  the 
name  and  in  behalf  of  our  constituents,  we  pledge  ourselves  to  aid  the 
national  government  in  the  present  emergency,  to  the  extent  of  our 
resources ;  and  we  do  this  in  the  hope  that  the  goodly  heritage  of  our 
freedom  may  descend  from  us  to  posterity  as  we  received  it,  excellent 
and  unimpaired. 

Be  it  further  resolved,  That  we  have  seen,  with  emotions  of  much 
concern,  the  protracted  delay  of  the  English  government  to  render  justice 
to  this  nation,  for  its  outrageous  depredations  upon  us ;  and  that  we  will 
afford  to  the  constituted  authorities,  in  whose  wisdom  and  firmness  we 
place  confident  reliance,  our  utmost  support  in  their  efforts  to  sustain 
the  honor  of  the  nation,  and  to  obtain  suitable  amends  for  its  injuries. 

But  not  merely  in  words  did  Ohio  lend  her  encourage- 
ment to  the  national  government.  When  Congress  laid  a 
direct  tax  upon  the  people,  Ohio  promptly  assumed  her 
quota  and  paid  it  out  of  the  state  treasury.  "Her  sons 
volunteered,  with  alacrity,  their  services  in  the  field;  and 
no  troops  more  patiently  endured  hardship,  or  performed 
better  service."29  In  1814  resolutions  were  passed  in  the 
House  of  Representatives,  approving  the  conduct  of  the 
war  by  the  federal  government,  and  condemning  the  acts 
of  the  enemy,  and  also  of  those  at  home  who  opposed  the 
war.30  A  dissenting  resolution  was  presented  in  the  Sen- 
ate, but  was  not  passed.31 

Upon  the  conclusion  of  the  war,  Ohio  took  part  ener- 
getically in  a  renewal  of  commercial  operations  with  the 
rest  of  the  country,  and  expanded  rapidly.  Her  develop- 
ment at  this  time  is  described  as  follows  by  a  contemporary 
writer  :32 

Excessive  importations  were  made  of  foriegn  goods.  The  tide  of  emigra- 
tion, which  had  been  restrained  by  the  war,  now  poured  into  Ohio  a  large 
accession  of  population.  The  numerous  banks,  which  had  been  chartered 
before  and  during  the  war,  and  which  continued  to  spring  into  existence 
in  every  part  of  the  state,  supplied  an  abundant  circulating  medium, 

"Chase,  I,  41. 
"Ho.  /.,  1814,  pp.  no-iii. 
nSen.  J.,  1814,  p.  340. 
32Chase,  I,  42. 


27]  ECONOMIC  AND  FINANCIAL  HISTORY  27 

Speculation,  stimulated  by  every  incentive,  ran  into  wild  and  extravagant 
excesses.  Improvements  of  every  kind,  under  its  strong  propulsion, 
advanced  with  wonderful  rapidity.  But  this  unnatural  state  of  things 
could  not  long  continue.  Men  who  had  contracted  debts  found,  when 
called  upon  for  payment,  that  the  means  were  wanting.  Banks,  which 
had  made  excessive  issues,  found  themselves  unable  at  all  times  to 
redeem  their  paper  on  demand,  and  the  currency  of  course  began  to 
depreciate. 

The  disordered  state  of  the  currency  affected  also  the 
state  finances,  and  created  difficulties  in  the  payment  of 
taxes  by  the  people,  and  in  the  receipt  of  depreciated 
bank  notes  by  collectors  and  the  state  treasurer.  The  gov- 
ernor thought  it 

absolutely  necessary,  that  the  legislature  should  designate  by  law,  what 
shall  be  received  by  the  collectors  of  public  money  in  payment  of  state 
and  county  taxes.83 

The  following  year  he  reported  that  there  was  an  un- 
expended balance  in  the  treasury  of  about  $32,000. 

The  nominal  amount  of  taxes  received,  and  expected  into  the  state 
treasury,  would  indicate  its  prosperous  condition ;  were  it  not,  that  many 
of  the  bank  bills,  which  collectors  are  compelled  to  receive,  if  the  collec- 
tion be  effected,  are  in  a  lamentable  state  of  depreciation.84 

Again  the  next  year  it  was  stated  that 

the  nature  of  a  part  of  the  funds,  in  the  treasury,  has  caused  some 
difficulty,  in  transacting  the  business  of  that  department ;  and  the  public 
creditors  remain  unsatisfied,  to  the  amount  of  more  than  twenty-six 
thousand  dollars ;  which  would  have  been  discharged,  but  for  the  deprecia- 
tion of  the  bank  notes,  of  which  the  remaining  fund  consists.85 

Resort  was  again  had  to  the  expedient  used  so  suc- 
cessfully in  1809,  of  authorizing  the  auditor  to  draw  bills 
on  the  treasurer,  in  the  settlement  of  accounts  due  in- 
dividuals by  the  state,  of  even  sums  of  $10,  $20,  "or  any 
fraction  between  them,  or  for  the  whole  amount  to  which 
a  person  is  entitled" ;  but  for  any  sum  under  $10  only  one 
warrant  should  be  drawn.36  Two  years  later  this  was  re- 
enacted  and  the  faith  of  the  state  pledged  for  the  redemp- 
tion of  the  bills.37  As  this  act  was  not  repealed  until 

^Gov.  Mess.  Ho.  /.,  1819,  p.  10. 
*'Gov.  Mess.  Ho.  J .,  1820,  p.  10. 
"Gov.  Mess.  Ho.  J.,  1821,  p.  13. 
""Act  of  Feb.  22,  1822. 
"Act  of  Feb.  24,  1824. 


28  FINANCIAL  HISTORY  OF  OHIO  [28 

1831,38  the  money  stringency  was  evidently  a  long  con- 
tinued one,  and  the  auditor's  warrants  filled  a  real  want, 
taking  the  place  of  depreciated  or  worthless  bank  notes. 

The  reason  for  this  depreciation  was  to  be  found  in 
the  too  extensive  and  injudicious  use  of  their  credit  by 
sanguine  borrowers,  who  were  unable  to  meet  their  engage- 
ments when  prices  fell  and  trade  declined.  The  banks  were 
thus  left  with  unnegotiable  paper  on  their  hands,  and 
having  themselves  over-issued,  were  unable  to  redeem  their 
circulating  notes.  At  the  time,  the  people  held  the  Bank 
of  the  United  States,  which  had  established  branches  at 
Cincinnati  and  Chillicothe,  responsible  for  most  of  their 
financial  troubles.  These  branches  issued  notes,  redeem- 
able on  demand,  to  a  considerable  amount,  and  the  presence 
of  this  convertible  paper  doubtless  tended  to  hasten  the 
depreciation  of  the  state  currency.  The  United  States 
branch  banks  also  insisted  that  the  local  banks  redeem 
their  own  notes  on  presentation,  but  few  could  endure  this 
ordeal,  and  their  notes  either  depreciated  greatly  or  in 
several  cases  became  absolutely  worthless.39 

In  1816  the  seat  of  the  state  government  was  estab- 
lished permanently  at  Columbus,  then  a  town  of  only  three 
years  growth,  yet  boasting  200  houses  and  700  inhabitants. 
A  contemporary  described  it  as  follows  :40 

The  streets  are  filled  with  stumps  of  trees  and  environed  with  woods, 
which  give  the  town  the  appearance  of  having  just  emerged  from  the 
forest.  The  houses  generally  are  small  and  indifferent  as  the  town  was 
laid  out  on  a  large  scale,  considerably  scattered.  The  people  have  been 
collected  from  every  quarter  and  having  great  diversity  of  habits  and 
manners  of  course  do  not  make  the  most  agreeable  company.  An  elegant 
state  house  is  being  erected,  about  eighty  feet  square,  constructed  of 
brick  and  finished  with  elegant  white  marble. 

The  governor,  in  1816-17,  used  part  of  the  contingent 
fund  placed  at  his  disposal  for  the  purchase  of  books  for 


""Act  of  Jan.  31,  1831. 

"For  a  full  account  of  the  operations  of  the  Bank  of  the  United  States 
in  Ohio,  and  the  efforts  of  the  legislature  to  drive  the  branches  out  of 
the  state,  see  chapter  on  Banking,  below. 

"Atwater,  History  of  Ohio,  p.  177. 


29]  ECONOMIC  AND  FINANCIAL  HISTORY  29 

the  state,  and  thus  laid  the  foundation  of  the  present  state 
library. 

In  spite  of  banking  troubles  and  primitive  conditions, 
the  wealth  and  population  of  the  state  continued  to  in- 
crease rapidly.  The  lands,  lots,  and  dwelling  houses  in 
Ohio  were  valued  at  $61,347,215  in  1815 ;  while  the  popula- 
tion grew  from  230,760  in  1810  to  581,434  in  1820.  The 
state  enumeration  of  free  white  males  above  twenty-one 
years  of  age  showed  64,814  on  May  1, 1815,41  and  98,780  on 
January  1,  1820.42  The  largest  proportion  of  the  settlers 
in  Ohio  were  from  the  middle  states,  as  Pennsylvania  and 
New  Jersey;  these  were  to  be  found  in  the  central  and 
southern  part  of  the  state.  Another  large  contingent  came 
from  the  South,  though  not  so  numerous  as  the  other;  these 
consisted  almost  entirely  of  the  poorer  whites,  the  non- 
slaveholding  elements.  New  England  made  the  smallest 
contribution,  and  the  settlers  from  that  section  were  to  be 
found  chiefly  in  the  northern  tier  of  counties.  In  the  Ohio 
legislature  in  1822  there  were  38  members  of  middle  state 
birth,  33  of  southern  (including  Kentucky),  and  25  of 
New  England. 

The  character  of  the  composite  population  thus 
brought  together  soon  showed  itself  by  the  stand  it  took 
upon  the  slavey  question  that  was  now  presenting  itself 
in  Congress  as  a  political  issue.  While  the  debate  over  the 
admission  of  Missouri  was  exciting  the  interest  of  people 
throughout  the  Union,  the  legislature  of  Ohio  sent  the  fol- 
lowing instructions  to  their  representatives:43 

Whereas,  the  existence  of  slavery  in  our  country  must  be  considered 
a  national  calamity,  as  well  as  a  great  political  evil ;  And  whereas,  the 
admission  of  slavery  within  the  new  states  or  territories  of  the  United 
States,  is  fraught  with  the  most  pernicious  consequences,  and  calculated 
to  endanger  the  peace  and  prosperity  of  our  country : — Therefore, 

Resolved  by  the  General  Assembly  of  Ohio,  That  our  senators  and 
representatives  in  congress  be  requested  to  use  their  utmost  exertions  to 
prevent  the  admission  or  introduction  of  slavery  into  any  of  the  territories 
of  the  United  States,  or  any  new  state  that  may  hereafter  be  admitted 
into  the  Union. 

"Sen.  /.,  1816,  p.  277. 
"Sen.  J.,  1820,  p.  127. 
"Sen.  J.,  1820,  p.  169. 


30  FINANCIAL  HISTORY  OF  OHIO  [30 

EXPANSION  :    SCHOOLS,,  CANALS,  AND  TAXATION. 

In  January,  1821,  the  first  tax  for  the  support  of 
schools  was  levied  by  the  legislature.  Up  to  that  time  they 
had  been  supported,  so  far  as  they  existed,  by  the  proceeds 
from  the  sale  of  school  lands.  When  Ohio  was  admitted 
to  the  Union,  it  was  on  the  condition  that  section  sixteen 
in  every  township  should  be  granted  the  state  for  the  use 
of  schools,  and  that  additional  tracts  of  land  equal  in 
quantity  respectively  to  one  thirty-sixth  of  the  Virginia 
reservation,  of  the  United  States  military  tract,  and  of 
the  Connecticut  reserve  should  be  ceded.  In  addition  to 
this,  three  per  cent,  of  the  proceeds  of  the  public  lands  sold 
within  its  limits  were  to  be  given  the  state  for  the  construc- 
tion of  roads.  As  a  return,  it  was  provided  that  Ohio 
should  not  tax  lands  sold  by  the  United  States,  for  five 
years  after  sale.  Efforts  were  made  to  lease  the  school 
lands,  and  to  incorporate  school  societies  and  libraries,  but 
these  were  ineffectual  as  the  lands  in  their  wild  state 
could  yield  no  income.44  Little  was  done  in  the  way  of 
establishing  schools,  as  the  benefits  of  public  schools  were 
then  not  fully  understood,  and  there  was  little  money  in 
the  state.  The  law  of  1821  made  the  levy  of  the  tax  volun- 
tary on  the  part  of  the  school  district,  and  was  therefore 
inoperative  in  most  sections  of  the  state.  Agitation  for 
better  schools  was  carried  on  by  a  committee  appointed 
in  1822  by  Governor  Trimble,  consisting  of  Caleb  Atwater, 
Ephriam  Cutler,  and  Nathan  Guilford,  and  was  finally 
made  a  political  issue.  By  joining  forces  with  the  canal 
party,  laws  for  the  establishment  of  schools  and  the  con- 
struction of  canals  were  passed  at  almost  the  same  time.45 
The  important  feature  of  the  school  act  was  that  the  county 
commissioners  were  ordered  to  levy  a  tax  of  half  a  mill  on 
the  dollar  "to  be  appropriated  for  the  use  of  common 
schools,"  in  their  respective  counties.  In  1829  the  tax  was 

"Rep.  of  Com'r  of  Statistics.   Exec.  Doc.,  1859,  I,  817. 
The  canal  bill  passed  Jan.  28,  1825,  by  a  vote  of  58-13 ;  and  the  school 
bill  on  Feb.  I,  by  a  vote  of  46-24. 


31]  ECONOMIC  AND  FINANCIAL  HISTORY  31 

raised  to  three-fourths,  and  in  1836  to  one  and  a  half  mills. 
The  principle  of  a  general  school  tax  had  now  been 
adopted,  but  in  practice  the  act  remained  very  ineffective. 
During  the  thirties  Governor  Lucas  urged  in  his  messages 
the  irrevocable  appropriation  of  various  trust  funds  to  the 
support  of  schools,  which  was  strongly  seconded  by  the 
Educational  Convention  in  1836.  The  result  was  the  en- 
actment of  the  act  of  March  7,  1838,  which  established  a 
permanent  school  fund  to  consist  of  "the  interest  on  the 
surplus  revenue,  at  5  per  cent.,  the  interest  on  the  proceeds 
of  salt  lands,  the  revenue  from  banks,  insurance  and  bridge 
companies,  and  other  funds  to  be  annually  provided  by  the 
state  to  the  amount  of  $200,000."  The  proceeds  from  the 
sale  of  school  lands  were  rather  unfairly  distributed 
among  the  counties  and  townships  according  to  their  re- 
spective interests  in  such  lands.46  In  the  following  table  is 
shown  the  growth  in  the  amount  of  taxes  and  funds  of 
all  kinds  devoted  to  the  support  of  common  schools  :47 

TOTAL  AMOUNT  OF  ALL 
YEAE.  STATE  TAXES.         FUNDS  (STATE  AND  LOCAL) 

1825 $  29,763          f  29,763 

1841 128,353  507,353 

1858 1,259,092  2,906,020 

The  state  of  the  treasury  called  for  notice  in  the  gov- 
ernor's message  in  1822,  and  was  described  as 

less  encouraging  than  I  could  have  wished ;  and  it  will  become  necessary, 
in  justice  to  present  and  future  creditors,  for  the  legislature  to  examine 
what  sources  of  revenue  they  can  command,  to  supply  with  least  vexation, 
the  deficiency  occasioned  by  depreciation  and  defalcation;  and  what 
retrenchment  can  be  made  in  expenditure,  without  injury  to  the  public 
service  ....  The  debts,  some  time  since  contracted  by  improvident 
speculation  of  the  adventurous,  and  probably  aggravated  by  a  too  careless 
economy  in  general,  continue  to  bear,  though  with  abated  weight,  on  the 
industry  of  our  community.  The  resource  of  the  country's  productions 
you  will  be  sensible,  has  greatly  failed  to  remove  this  embarrassment, 
from  the  want  of  demand  and  their  low  price,  since  the  late  war.4* 

The  staple  products  of  Ohio  were  practically  excluded  from 

"Exec,  Doc.,  1859,  II,  41. 

"Rep.  of  Com'r  of  Stat.  Exec.  Doc.,  1859,  I,  823. 

"Gov.  Mess.  Ho.  /.,  1821-22,  p.  8. 


32  FINANCIAL  HISTORY  OF  OHIO  [32 

the  Atlantic  market,  owing  to  the  heavy  charges  for  trans- 
portation from  the  interior ;  while  perishable  articles  were 
always  exposed  to  the  hazard  of  a  too  hot  climate  when 
sent  to  New  Orleans. 

The  necessity  of  relying  on  our  internal  resources  admits  not  of  a  ques- 
tion [concluded  the  governor49]  but  the  manner  in  which  those  resources 
can  best  be  called  into  action,  for  immediate  alleviation  of  distress,  and 
to  provide,  at  the  same  time,  for  future  prosperity,  is  more  doubtful, 
and  demands  the  most  discriminating  intelligence  of  our  statesmen.  One 
of  the  evident  means  to  mitigate  the  present  hardships,  and  promote 
our  independence,  is  in  those  manufactures  which  can  be  economically 
executed  in  our  country ;  but  to  what  extent  the  skill  and  industry  of 
the  inhabitants  have,  hitherto,  been  able  to  provide  those  necessaries  for 
which  they  had  depended  on  importation,  appears  too  little  known;  yet 
it  is  believed  to  be  very  considerable. 

In  his  message  of  1823,  the  governor  recurs  to  the  sub- 
ject as  follows: 

The  industry,  frugality  and  rigid  economy  so  generally  observed  are 
gradually  relieving  the  country  from  embarrassment,  and  the  agricultural, 
manufacturing  and  commercial  interests  of  the  state  are  manifestly  im- 
proving.50 

To  add  to  the  financial  distress  the  year  1821  was  "un- 
usually sickly",51  while  in  1823  "an  epidemic  widely  extend- 
ed in  its  range  and  unusually  virulent  in  its  attacks"52 
visited  a  large  portion  of  the  state.  At  the  same  time  there 
was  a  partial  failure  of  the  crops  in  that  part  of  the  state 
where  the  fevers  were  most  prevalent.  Nevertheless  the 
governor  believed  that  "the  products  of  the  year  will  be 
found  sufficient  for  the  subsistence  of  the  inhabitants, 
leaving  a  surplus  for  exportation,  equal  perhaps,  to  the 
present  limited  demand  for  our  bread  stuffs."53 

By  1825  the  growth  of  population  and  production  had 
increased  the  agricultural  surplus  of  Ohio  beyond  the  then 
existing  means  of  transportation.  The  state  census  of 
1825  showed  the  number  of  white  male  persons  in  the  state 

"Ibid.,  p.  g. 

"Ho.  /.,  1823,  p.  30. 

"Gov.  Mess.,  Ho.  /.,  1822,  p.  8. 

"Gov.  Mess.,  Ho.  J.,  1824,  p.  15. 

"Ibid.,  p.  15. 


33]  ECONOMIC  AND  FINANCIAL  HISTORY  33 

on  January  1,  to  be  124,724,54  while  the  total  number  of 
inhabitants  was  estimated  at  over  700,000.  As  agriculture 
was  practically  the  only  occupation,55  and  an  outlet  for  its 
products  was  to  be  found  only  in  those  districts  bordering 
on  the  rivers  or  lake,  the  surplus  in  the  interior  counties 
was  almost  valueless.  Thus  in  1825  wheat  was  sold  in  the 
interior  counties  for  37  cents  a  bushel  and  corn  for  10 
cents/'6.  The  need  of  an  outlet  for  this  produce  to  the 
Atlantic  seaboard  was  strongly  felt,  and  led  to  the  agita- 
tion for  a  system  of  canals  which  should  connect  the  Ohio 
River  with  Lake  Erie  and  provide  water  communication 
for  the  interior  counties.  Accordingly  in  1825  work  was 
begun  on  the  Ohio  canal,  which  crossed  the  state  from 

MHo.  J.,  1825,  p.  428. 

"In  1830  the  governor  writes :  "Our  state  is  essentially  agricultural". 
Ho.  J.,  1830,  p.  10. 

MRingwalt,  Transportation  Systems,  p.  155.  The  following  quotation 
from  the  History  of  Seneca  County  (Springfield,  Ohio,  1880,  />.  213"),  by 
W.  Lang,  describing  conditions  as  they  existed  in  the  twenties,  is 
of  particular  interest,  and  is  therefore  given  in  extenso :  Great  was 
the  trouble  owing  to  scarcity  of  money.  Barter  and  trade  was 
the  order  of  the  day,  and  while  this  exchange  was  all  right  in  some 
respects,  it  would  not  answer  for  others.  Taxes  could  not  be  paid  in 
that  way,  and  the  merchant,  after  waiting  a  long  time,  had  to  have  cash 
with  which  to  meet  his  bills  in  New  York  or  Philadelphia.  When  a  man 
had  anything  to  sell,  it  found  no  market  for  money.  He  could  trade 
it  away  for  something  he  wanted  from  his  neighbor.  If  a  man  wanted  an 
article  from  another,  and  had  nothing  to  exchange  for  it,  he  paid  in 
work  by  the  day,  or  agreed  to  clear  so  many  acres  of  land  for  the  article. 
Men  bought  their  cows,  their  horses  or  hogs,  in  that  way.  Corn  and 
wheat  were  hauled  by  ox  teams,  generally  to  Mansfield  or  Sandusky, 
to  be  sold  for  money.  Wheat  was  hauled  to  a  market  forty  to  sixty 
miles  away,  where  it  could  be  sold  for  only  30  cents  a  bushel  in  cash,  or 
for  3  shillings  [37^2  cents]  in  trade.  Sandusky  was  the  principal  market 
[of  Seneca  county]  for  wheat,  and  many  a  load  was  sold  there,  at  3 
shillings  a  bushel,  for  salt  at  $5  a  barrel,  when  it  took  about  one  week 
to  make  the  trip. 

Getting  grinding  done  at  the  few  mills  there  were  then  in  the  county, 
was  attended  with  equally  great  hardship.  After  the  City  Mill  of  Tiffin 
was  put  up,  farmers  from  Crawford,  Hancock,  and  Marion  counties,  came 
here  to  get  their  grists  ground,  and  at  times  15,  20,  or  more  teams  waited 
their  turn  and  camped  out  a  whole  week. 


34  FINANCIAL  HISTORY  OP  OHIO  [34 

Portsmouth  on  the  Ohio  Biver  to  Cleveland  on  Lake  Erie, 
and  on  the  Miami  canal  between  Dayton  and  Cincinnati. 

During  the  next  few  years  the  legislature  gave  its 
almost  undivided  attention  to  the  building  of  these  canals, 
and  devoted  little  to  other  matters.  The  reports  of  the 
auditor,  the  governors'  messages,  and  the  journals  of  the 
general  assembly,  contain  little  but  discussions  of  the  canal, 
and  later  railroad,  construction,  coupled  with  prophesies 
of  the  future  greatness  of  Ohio  as  a  result  of  the  policy  of 
internal  improvements.  Nor  is  much  additional  light  on 
current  events  to  be  gained  from  the  laws,  which  seem 
directed  only  to  the  single  end  of  canal  legislation.57 

The  completion  of  the  Ohio  canal  in  1833  opened  up 
the  whole  interior  region  of  the  state  to  the  northern  and 
eastern,  as  well  as  to  the  southern,  markets.  Continuous 
water  communication  was  now  possible  from  a  large  part 
of  Ohio  via  the  Ohio  canal,  Lake  Erie,  the  Erie  canal,  and 
the  Hudson  Kiver  to  New  York  City  and  the  Atlantic  sea- 
board, and  thence  to  Europe.  As  a  result  the  agricultural 
exports  of  Ohio  increased  enormously  and  at  the  same  time 
better  prices  were  received.  In  1835  there  were  shipped 
from  the  state  of  Ohio  through  by  canal  to  New  York 
86,000  barrels  of  flour,  98,000  bushels  of  wheat,  and  2,500,- 
000  staves.58  But  the  effects  of  the  canals  were  not  con- 
fined to  Ohio  alone.  The  pouring  of  this  vast  amount  of 
western  produce  into  the  eastern  markets  reduced  the 
prices  of  those  products  in  New  England  and  the  East, 
lowered  the  price  of  farms,  and  started  a  wave  of  migration 
to  the  Central  West.  Ohio  experienced  an  unprecedented 
wave  of  prosperity  and  grew  rapidly  in  population  and 
resources.  The  population  of  the  state  increased  from 
937,679  in  1830  to  1,515,161  in  1840.  In  1835  the  white 
male  inhabitants  over  twenty-one  years  of  age  were  235,- 
225.  The  character  of  the  immigrants  was  high;  they 

"The  financial  and  legislative  history  of  this  period  will  consequently 
be  found  at  greater  length  in  a  forthcoming  monograph  on  Internal  Im- 
provements in  Ohio. 

**Rep.  on  Internal  Commerce  of  the  U.  S.  (1887),  p.  202. 


35]  ECONOMIC  AND  FINANCIAL  HISTORY  35 

possessed  habits  of  industry  and  enterprise,  and  speedily 
converted  the  forested  areas  into  fruitful  fields,  and  helped 
to  build  up  thriving  villages.  There  was  a  slight  check  to 
the  general  expansion  in  1833,  owing  to  the  prevalence  of 
the  cholera  in  parts  of  the  state,59  but  it  did  not  continue 
long. 

A  decided  stimulus  was  given  to  the  agricultural 
interests  of  the  state,  and  in  1833  an  act  was  passed  by 
the  legislature  to  authorize  and  encourage  the  establish- 
ment of  agricultural  societies.  In  response  to  this  sugges- 
tion a  number  of  such  societies  were  formed  in  the  counties 
of  Licking,  Washington,  Greene,  Clinton,  and  Pickaway, 
"exhibiting  very  flattering  tabular  statements  of  the  con- 
dition of  their  respective  counties  in  an  agricultural  and 
manufacturing  point  of  view."60  The  chairman  of  the  stand- 
ing committee  on  agriculture  reported  to  the  House  in 
1834° 1  that  "within  a  few  months  an  association  has  been 
formed  for  the  purpose  of  importing  the  best  breed  of 
European  cattle",  that  "another  association  has  also  been 
formed  with  the  view  of  selecting  for  this  valley,  some  of 
the  best  stock  in  the  northern  part  of  the  Union".  Similar 
efforts  were  also  made  to  improve  the  breeds  of  sheep  and 
hogs. 

The  state  was  still  distinctively  an  agricultural  state, 
and  continued  to  be  so  as  long  as  labor  could  be  more 
profitably  employed  in  agricultural  than  in  manufacturing 
pursuits.  There  w-as,  however,  a  considerable  development 
of  domestic  manufactures,  which  was  described  in  the  gov- 
ernor's message  of  1834.62 

In  speaking  of  manufactures,  [he  wrote]  I  do  not  allude  to  establish- 
ments that  require  large  investments  of  capital  and  protecting  duties  to 
enable  them  to  sustain  themselves,  for  we  have  few  such  in  Ohio,  but 
to  such  as  have  been  established  by  our  enterprising  citizens,  for  manu- 
facturing materials  produced  within  the  state.  Those  carried  on  by 
mechanics  in  their  shops ;  and  particularly  that  description  of  manu- 

"Rep.  of  Canal  Commissioners.    Ho.  ].,  1833,  p.  297. 

"Ho.  J.,  1834,  p.  622. 

nHo.  J.,  1834,  P.  455 

"Gov.  Mess.  Ho.  J.,  1834,  p.  8. 


36  FINANCIAL  HISTORY  OF  OHIO  [36 

factures  in  which  our  industrious  females  are  the  principal  operators,  and 
may  be  found  in  the  greater  portion  of  families  in  the  state,  where  the 
various  articles  of  common  clothing,  bedding,  carpeting,  and  sundry  other 
necessary  articles  for  the  use  of  the  family  are  manufactured ;  these 
manufactures  are  calculated  to  render  us  independent  as  a  people,  par- 
ticularly the  last  which  is  truly  domestic  in  its  character,  extensive  in  its 
benefits  and  cannot  be  too  highly  commended. 

Of  factories  in  the  modern  sense  there  were  none,  nor  was 
production  on  a  large  scale  present.  "With  the  exception 
of  the  articles  of  salt  and  iron  the  manufactories  in  Ohio 
are  not  extensive,"  wrote  the  governor  in  1836.63 

The  year  1825  had  also  been  marked  by  a  thorough 
revision  of  the  revenue  laws.  The  act  of  February  3,  1825,64 
for  the  first  time  abandoned  the  primitive  practice  of 
classifying  the  land  according  to  the  quality  of  the  soil, 
and  added  other  sources  of  state  revenue  to  the  land  tax, 
from  which  almost  the  whole  of  the  income  of  the  state 
had  up  till  now  been  derived.  Town  lots  and  buildings, 
dwelling  houses,  horses  and  cattle,  pleasure  carriages,  and 
the  capital  of  merchants  and  exchange  brokers  were  now 
subjected  to  taxation.  By  this  act  the  principle  of  the 
general  property  tax,  and  much  of  Its  administrative 
machinery,  was  introduced,  though  it  was  by  no  means 
fully  carried  out  in  practice.  In  1831  the  list  of  taxable 
objects  was  considerably  enlarged,  and  a  number  of  kinds 
of  property,  especially  that  engaged  in  manufacturing  of 
all  sorts,  was  added  to  the  list  of  taxable  property.  No 
further  charge  was  made  until  the  thorough-going  applica- 
tion of  the  theory  of  the  general  property  tax  in  1846. 
The  results  of  the  changes  in  the  tax  laws  were  promptlv 
seen  in  the  improved  financial  condition  of  the  state 
treasury.  "The  receipts  from  taxation  annually  exceed  our 
calculations,"  wrote  the  auditor  in  1831.03  There  was 
evidenced  in  this  fact  not  merely  improvement  in  the 
revenue  laws,  but  even  more  clearty  the  rapid  growth  of 
wealth  and  prosperity  in  the  state.  The  period  was  one 

"Gov.  Mess.  Exec.  Doc.,  1836,  No.  i,  p.  23. 

"Chase,  II,  1476. 

"Aud.  rep.  Ho.  J .,  1831,  p.  24. 


37]  ECONOMIC  AND  FINANCIAL  HISTORY  37 

of  general  expansion  and  of  undoubted  prosperity,  though 
it  was  given  an  artificial  stimulus  by  the  over-issue  of 
bank  notes  and  the  development  of  speculation.  In  these 
regards  the  experience  of  Ohio  was  not  very  different  from 
that  of  other  states. 

The  success  of  the  Ohio  canal  induced  the  state  to 
enter  upon  a  more  ambitious  and  comprehensive  system  of 
internal  improvements.  Additional  canals  were  projected 
and  begun :  the  Miami  and  Erie  connecting  the  Ohio  River 
at  Cincinnati  with  Lake  Erie  at  Toledo,  the  Wabash  and 
Erie,  Hocking  Valley,  the  Muskingum  improvement,  etc. 
Every  part  of  the  state  was  clamorous  for  improvements 
and  they  were  begun  simultaneously  at  various  points. 
Nor  were  they  confined  to  canals  alone;  turnpikes, 
slackwater  navigation  companies,  railroads,  etc.,  also 
claimed  assistance.  The  major  part  of  the  business  of  the 
legislature  during  this  period  of  expansion  consisted  in 
incorporating  companies  for  purposes  of  internal  improve- 
ment. Thus,  during  the  sessions  of  1835-6  and  1836-7  the 
following  local  acts  were  passed: 

1835-6    1836-7 

Sale  of  public  lands 13  15 

Manufacturing  companies  16 

Insurance   companies    • 13 

Railroad  companies  32  15 

Roads 50  58 

Turnpike  companies    14  23 

Bridge   companies    • 5  6 

relating  to  bridges 7  2 

Canal   companies 5 

relating  to  canals    • 13 

Slackwater  navigation  companies —  5 

Many  of  these  projects  were  visionary  and  impractic- 
able, but  the  enthusiasm  of  the  times  had  blinded  people 
and  legislators  alike  to  the  usefulness  or  feasibility  of 
schemes  of  internal  improvement.  Additional  stimulus 
was  given,  if  any  was  needed,  by  the  act  of  Congress  in 
distributing  the  surplus  revenue  of  1837  among  the  states. 
Ohio  accepted  her  share  of  the  act  of  December  19,  1836, 


38  FINANCIAL  HISTORY  OF  OHIO  [38 

and  distributed  it  among  the  counties,  where  it  could  be 
loaned  out  by  the  commissioners,  subject,  however,  to  the 
recall  of  the  state  in  1851.  The  proceeds  were  devoted 
to  the  support  of  the  common  schools.  The  following 
year  Ohio  passed  her  famous  loan  law,  according  to  which 
the  credit  of  the  state  was  loaned  to  railroad  companies; 
and  the  state  was  authorized  to  subscribe,  under  certain 
conditions,  to  the  stock  of  canal,  turnpike,  bridge,  and 
other  companies.  The  result  was  the  multiplication  of 
these  companies,  and  the  straining  of  the  credit  of  the 
state  almost  to  the  breaking  point. 

A  reversal  of  parties  in  1838  resulted  in  the  repeal  of 
much  of  the  rather  radical  legislation  of  1836,  and  the 
enactment  of  new  measures.  Provision  was  made  for  a 
new  state  house,  by  the  appointment  of  three  commis- 
sioners!, who  were  authorized  to  offer  three  prizes  of 
|500,  |300,  and  |200  for  the  best  plans.60  The  board  of 
public  works,  which  had  been  created  two  years  before, 
was  abolished  and  the  old  board  of  canal  commissioners 
reinstated;  banking  legislation  was  also  passed.  But  in 
the  following  year  the  canal  commissioners  were  put  out 
of  office  again,  and  the  legislation  of  1838  reversed.  The 
board  of  public  works  was  restored,  the  commissioners 
for  the  new  state  house  removed,67  and  the  banking  legisla- 
tion repealed.  In  1838  Ohio  rather  tardily  joined  the  list 
of  states  which  had  abolished  imprisonment  for  debt,  by 
abolishing  it  for  debts  under  f  100.68  The  growth  of  the 
state  and  its  rapid  settlement  is  shown  by  the  fact  that 
there  were  now  seventy-five  counties,  of  which  some  con- 
tained towns  of  considerable  size.  The  price  of  land 
varied  throughout  the  state  from  $1.25  to  f  100  an  acre.  As 
proof  of  the  prosperity  that  prevailed  a  contemporary 
writer  stated  that  the  price  of  labor  was  50  per  cent,  higher 
than  in  the  Atlantic  states,  while  provisions  were  about 
50  per  cent,  cheaper  than  there.69 

"Act  of  Jan.  26,  1838. 
"Act  of  March  u,  1840. 
"Act  of  March  19,  1838. 
"Atwater,  History  of  Ohio,  p.  316. 


39]  ECONOMIC  AND  FINANCIAL  HISTORY  39 

PANIC,  BANKING  PROBLEMS,  AND  ECONOMY. 

The  panic  of  1837,  which  followed  the  undue  expansion 
of  industrial  activity,  the  investment  of  so  much  capital  in 
fixed  and  often  unproductive  forms,  and  the  excessive 
currency  inflation  and  speculation,  affected  Ohio  along 
with  the  rest  of  the  country.  Conditions  were  never  so 
bad  in  the  Ohio  valley,  however,  as  in  the  East.  "In  this 
state",  wrote  the  governor  in  January,  1839.70 

our  citizens  have  felt  the  pressure  to  a  considerable  extent,  and  are  still 
laboring  under  its  unfavorable  influence.  It  has  not,  however,  fallen  with 
the  same  force  on  us  as  on  the  citizens  of  some  other  portions  of  the 
Union.  This  is  owing  to  the  fact  that  we  are  more  an  agricultural,  than 
a  manufacturing  or  commercial  people ;  and,  comparatively  speaking,  but 
little  in  debt.  The  embarrassment  and  pressure  among  our  business  men 
in  Ohio,  I  am  convinced,  will  be  of  but  temporary  duration.  Their 
business  habits,  energy  of  character,  with  the  great  ami  increasing  re- 
sources of  the  country,  will  soon  enable  them  to  recover  from  their 
present  difficulties.  The  mechanical  and  agricultural  portions  of  the 
community  being  generally  out  of  debt,  have  not  experienced  the  same 
embarrassments  that  have  been  felt  by  the  merchants,  and  those  engaged 
in  heavy  business,  demanding  large  capital  and  extensive  credit. 

The  contraction  of  the  banks,  and  the  consequent 
scarcity  of  a  circulating  medium,  when  compared  with 
former  years,  increased  the  embarrassment.  Between 
April  30,  1837,  and  September  30,  1838,  the  discounts  of 
the  banks  were  reduced  $8,237,537  and  the  circulation 
$1,824,419.  A  still  more  drastic  reduction  of  the  circula- 
tion was  made  the  following  year,  between  April  30  and 
September  30,  1839,  of  $4,460,775;  the  outstanding  bank 
notes  were  now  only  $3,697,098.  At  the  same  time  an 
unusually  abundant  harvest  of  wheat  depressed  the  price 
of  that  staple,  and  made  the  payment  of  debts  contracted 
under  the  regime  of  high  prices  still  more  difficult.71 

As  a  consequence  of  these  embarrassments,  the  legis- 
lative session  of  1840  showed  great  economies:  the  loan 
law  was  repealed,  as  was  also  the  act  for  the  erection  of 
the  new  state  house ;  the  number  of  members  on  the  board 

"Gov.  Mess.  Exec.  Doc.,  1839,  I,  6. 
"Gov.  Mess.  Exec.  Doc.,  1840,  I,  23. 


40  FINANCIAL  HISTORY  OF  OHIO  [40 

of  public  works  was  reduced,  the  receipts  and  disburse- 
ments of  the  canal  fund  were  brought  under  the  control  of 
the  auditor,  and  canal  appropriations  were  cut  heavily. 
As  evidence  of  good  faith  in  their  economies,  under  the 
heavy  pressure  that  was  brought  to  bear  upon  them,  the 
legislature  soon  after  reduced  their  own  pay  and  that  of 
most  of  the  state  officers.72  But  as  soon  as  the  immediate 
pressure  was  removed  they  restored  their  own  pay  again 
to  the  previous  rate,73  and  the  following  year  repealed  the 
rest  of  the  act.74  But  not  merely  were  public  economies 
affected;  "a  laudable  spirit  of  economy  seems  to  pervade 
the  whole  community''.75  There  was  during  this  whole 
period  a  large  balance  of  indebtedness  against  Ohio  in 
favor  of  the  East  for  manufactured  goods  and  for  interest 
on  borrowed  capital,  which  necessitated  an  excess  of 
exports  every  year.  To  the  payment  of  these  obligations 
the  people  of  Ohio  manfully  and  energetically  applied 
themselves.  The  interest  on  the  public  debt  was  faithfully 
met,  and  private  debts  were  rapidly  paid  off. 

That  the  economic  foundations  upon  which  Ohio  had 
reared  her  structure  of  credit  during  these  years  wras  at 
basie  sound,  is  shown  by  the  exports  from  the  state  in 
1840.76 


"Act  of  Jan.  27,  1844.  The  pay  of  members  of  the  general  assembly 
was  fixed  at  $2.00  per  day,  and  $2.00  for  every  25  miles  traveled  to  the 
state  capital.  The  governor  was  allowed  a  salary  of  $1,000;  the  secretary 
of  state  $500;  auditor,  $730;  treasurer,  $730;  judges  of  the  supreme  court, 
$1000 ;  president  judges  of  the  courts  of  common  pleas,  $730 ;  etc. 

73Act  of  Jan.  29,  1847.  The  rates  were  now  $3.00  per  day  for  the 
first  sixty  days  of  the  session,  and  $1.00  per  day  thereafter;  and  $3.00 
mileage  for  every  25  miles  travel. 

"Act  of  Feb.  7,  1848. 

"Inaugural  address  of  Governor  Shannon,  Dec.  14,  1842,  p.  4. 

"Rep.  of  Commissioners  of  Canal  Fund.  Exec.  Doc.,  1841,  Doc.  No. 
49,  P.  17- 


41]  ECONOMIC  AND  FINANCIAL  HISTORY  41 

EXPORTS  IN  1840  ESTIMATED  VALUE 

Breadstuffs,  mostly  wheat  and  flour • . .  .$  7,098,810 

Other   agricultural   products,   including  distilled   spirits 1,874,402 

Products  of  domestic  animals,  chiefly  pork,  lard,  butter,  cheese, 

and   wool    2,315,069 

Domestic  animals  driven  from  the  state  on  foot   2,600,000 

Products   of   mines   and   forests 782,700 

Manufactured  articles    5,000,000 


Total $19,670,981 

During  this  same  year  7,500,000  acres  of  land  were 
reported  to  be  in  cultivation,  most  of  which  was  devoted 
to  wheat  growing.  Ohio  every  year  sent  a  considerable 
surplus  of  this  staple  to  the  East,  and  some  of  it  abroad. 
"A  large  amount  of  the  wheat  of  Ohio  and  Michigan  has 
found  its  way  to  England,  through  the  Canadas,  within  the 
past  few  years,  by  paying  mere  nominal  duties.77  The 
depression  in  the  value  of  wheat  made  it  difficult  for  the 
farmers  to  pay  their  taxes,  which  the  extravagant  under- 
takings of  the  state  had  raised  to  a  high  rate,  while  even 
at  this  early  date  the  soil  began  to  show  signs  of  exhaus- 
tion from  steady  cultivation  of  wheat  and  lack  of  fertilizers. 

By  neglect  and  unskilful  tillage  [wrote  the  governor  in  1845"]  nearly 
one-half  of  the  products  of  this  great  source  of  wealth  and  prosperity 
[i.  e.  agriculture]  may  be  lost.  Already  it  is  apparent  in  some  parts  of 
the  state  that  a  deterioration  of  the  soil  has  taken  place,  and  great  want 
of  skill  exists  in  the  production  of  crops.  The  agriculturists  in  our  state 
have  not  adopted  those  improvements  and  useful  discoveries  which  have 
been  made  in  the  cultivation  of  the  soil. 

One  interesting  and  natural  result  of  the  panic  was 
the  almost  complete  cessation  of  works  of  internal  improve- 
ment. Thus  the  laws  incorporating  new  companies,  and 
providing  for  works  of  this  sort,  dropped  to  almost  noth- 
ing. In  1843  acts  of  incorporation  were  passed  for  only 
three  banks,  one  canal  company,  five  turnpike  companies, 
and  to  lay  out  two  state  roads.  As  contrasted  with  the 
feverish  activity  desplayed  in  1835-36  or  1836-37  this 
marked  a  great  decline.  Such  a  change  must  be  regarded 

ITGov.  address,  Dec.  14,  1842,  p.  7. 
nExec.  Doc.,  1845,  I,  6. 


42  FINANCIAL  HISTORY  OF  OHIO  [42 

as  a  gain,  for  the  time  and  attention  of  the  legislature  had 
been  absorbed  in  the  work  of  special  and  local  legislation 
for  years,  and  evils  of  lobbying  and  illegitimate  influences 
had  inevitably  grown  up  at  the  state  capital  under  such  a 
system.  The  banks  had  possibly  been  the  worst  offenders, 
as  they  were  the  greatest  beneficiaries.  So  great  had  grown 
the  evil  that  in  1844  the  governor  devoted  special  attention 
to  it  in  his  annual  message  to  the  legislature.79  The  fol- 
lowing extracts  are  of  especial  interest : 

It  is  apparent  that  special  and  local  legislation  in  this  State  has  been 
indulged  until  it  has  truly  become  an  evil.  Within  the  last  six  years,  two 
thousand  and  fifty-nine  acts  have  been  passed,  of  which  seventeen  hundred 
and  forty-six  are  special  statutes,  and  three  hundred  and  thirteen  fall 

under  the  denomination  of  general  laws Of  the  seventeen 

hundred  and  forty-six  special  acts  above  mentioned,  eleven  hundred  and 
twenty-seven  relate  to  corporations — the  grants  of  exclusive  privileges  and 
special  immunities  to  associations  of  individuals.  This  class  of  special 
legislation  has  been  continued  in  nearly  an  equal  ratio  for  the  last  ten 
years ;  and  should  it  be  persevered  in,  and  corporations  continue  to  multiply 
as  heretofore,  for  the  next  twenty  years,  the  State  will  be  literally  thatched 
with  charters  of  incorporations,  and  the  past  subterfuges,  pretenses,  frauds 
and  profligacy  of  corporations  will  form  but  a  miniature  epitome  of  what 

vi  ill  be  exhibited   in   future One  of  the  evil  tendencies  of 

the  present  age  is  a  venal  spirit  of  adventure,  stimulated  by  a  thirst  to 
acquire  property  without  earning  it,  and  a  desire  to  transact  business 
through  the  agency  of  acts  of  incorporation.  Wealth  has  its  appropriate 
influence,  and  possessses  naturally  intrinsic  advantages  over  labor ;  but 
when  associated  under  charters,  and  favored  with  special  immunities,  and 
exclusive  privileges,  it  builds  up  oppressive  monopolies  in  the  business  of 
the  country,  and  acquires  an  undue  ascendency  over  the  interests  and 
rights  of  the  private  citizen. 

Although  the  activities  of  the  state  were  checked  in 
works  of  internal  improvements,  the  local  governments 
did  not  withdraw  so  quickly  from  the  field.  When  once 
the  virus  had  entered  the  blood  the  fever  of  speculation 
was  not  so  easily  cured.  An  act  of  1846  provided  for 
holding  a  referendum  in  counties,  in  case  the  county  com- 
missioners wished  to  subscribe  to  the  stock  of  a  railroad, 
turnpike  road,  or  other  incorporated  company.80  There 

**Gov.  Mess.  Exec.  Doc.,  1844,  I,  n. 
"Act  of  Feb.  28,  1846. 


43]  ECONOMIC  AND  FINANCIAL  HISTORY  43 

seems  to  have  been  a  shifting  of  these  works  from  the  state 
to  the  local  governments,  rather  than  a  complete  with- 
drawal from  works  of  public  improvement.  By  vigorous 
efforts  and  loans  at  almost  ruinous  rates  of  discount  the 
state  pushed  the  work  on  the  canals  to  completion  by  1848. 
In  that  year  the  state  debt  reached  its  highest  point,  and 
measures  were  taken  to  create  a  sinking  fund  for  its 
liquidation.  The  effect  of  these  acts  on  the  credit  of  the 
state  was  at  once  apparent,  and  Ohio's  credit  rose  high  in 
the  loan  market;  the  six  per  cent,  stock  of  the  state  was 
quoted  in  New  York  at  1031/4.81 

Meanwhile  another  problem  was  pressing  for  solution 
at  the  hands  of  the  legislature — that  of  banking.  In  Ohio, 
as  elsewhere  at  this  time,  the  idea  had  prevailed  that  the 
prosperity  of  the  state  was  dependent  upon  the  increase  in 
banking  institutions  and  the  expansion  of  bank  issues. 
At  the  sessions  of  1835-6,  1836-7,  1838-9,  and  1840-41, 
petitions  for  more  banks  were  crowded  upon  the  legisla- 
ture in  unequaled  numbers.82  A  majority  of  the  bank 
charters  were  to  expire  in  1843  and  1844,  and  it  was  now 
possible  for  the  legislature  to  prescribe  more  carefully,  if 
they  wished,  the  conditions  of  banking.  This  they  did  by 
a  general  act  of  March,  1842,  which  superseded  the  old 
special  charters  and  imposed  rigid  restrictions  on  the 
abuses  heretofore  practiced.  This  was  alleged  to  be  too 
severe,  and  though  it  was  modified  the  following  year, 
no  banks  were  organized  under  it.  Finally,  by  act  of  Feb. 
24,  1845,  the  State  Bank  of  Ohio  was  established  with 
seventeen  branches,  and  nine  so-called  independent  banks 
were  chartered;  in  addition  to  these  there  still  remained 
eight  banks  doing  business  under  charters  granted  under 
the  old  banking  system.  The  aggregate  amount  of  the 
banking  capital  of  these  thirty-four  banks  on  November  1, 
1846,  was  |5,826,677,  and  the  whole  circulation  was  f  5,674,- 
769.83  The  new  law  provided  for  a  more  careful  regula- 

$1Rep.  Board  of  Canal  Fund  Com'rs,  Jan.  15,  1849,  p.  107. 
**Exec.  Doc.,  1844,  Doc.  No.  i,  p.  11. 
"Gov.  Mess.  Exec.  Doc.,  1846,  I,  10. 


44  FINANCIAL  HISTORY  OF  OHIO  [44 

tion  and  supervision  of  the  banks  than  had  been  the  prac- 
tice, and  limited  the  circulation  so  as  to  provide  a  more 
uniform  and  stable  currency. 

And  already  [wrote  the  governor  at  the  beginning  of  1846]  the  people 
of  Ohio  begin  to  feel  the  influence  of  this  system  in  the  restoration  of 
confidence,  the  revival  of  business,  the  increase  of  the  wages  of  labor, 
and  the  rising  prosperity  of  the  State.84 

But  the  hard  times  were  by  no  means  over,  as  is 
evidenced  by  an  act  of  1845,85  for  the  relief  of  borrowers 
of  the  surplus  revenue  fund  in  the  hands  of  the  counties, 
extending  the  time  of  payment  of  interest  and  of  execu- 
tion for  non-payment.  To  meet  the  needs  of  the  state  and 
make  good  the  decline  in  ordinary  revenue,  the  legislature 
sought  out  new  sources  of  taxation,  as  money  brokers  in 
1845.86  They  also  proceeded  to  close  the  doors  as  far  as 
possible  to  loose  use  or  misuse  of  the  public  funds  by  an  act 
of  1846,07  to  punish  embezzlement  of  the  public  moneys. 
This  was  broadly  defined  as  using,  loaning,  or  investing 
such  money  and  was  punished  by  a  fine  of  from  $50  to  $500 
and  the  loss  of  office ;  contracts  for  personal  advantage  were 
also  forbidden.  The  enactment  of  such  a  law  certainly 
points  to  the  existence  of  loose  methods  of  handling  the 
public  moneys,  and  a  desire  to  improve  conditions. 

Progress  along  cultural  and  industrial,  as  well  as 
financial  lines,  was  evidenced  by  a  number  of  isolated 
events.  In  1844  public  executions  were  abolished.88  Two 
years  later  a  state  board  of  agriculture  was  established;89 
it  met  and  organized  April  1,  and  made  its  first  report  on 
December  25  of  the  same  year.  The  wave  of  democracy 
that  swept  over  the  country  at  this  time  affected  Ohio  also. 
In  1850  it  was  provided  that  the  members  of  the  board  of 
public  works,  the  attorney  general,  and  other  appointive 
state  officers,  should  thereafter  be  elected  by  the  people.90 

**Gov.  Mess.  Exec.  Doc.,  1845,  I.  5- 

"March  11,  1845. 

"March  12,  1845. 

"March  2,  1846. 

"Act  of  March  12,  1844. 

"Act  of  Feb.  28,  1846. 

"Act  of  March  22,  1850. 


45]  ECONOMIC  AND  FINANCIAL  HISTORY  45 

The  industrial  development  of  the  state  also  claimed  the 
attention  of  the  legislature:  in  1847  an  act  was  passed 
"to  facilitate  the  construction  of  the  Electric  Telegraph", 
by  providing  that  lines  might  be  constructed  in  any  place 
"so  they  do  not  incommode  the  public";01  and  in  1851 
lotteries  were  absolutely  forbidden.  The  following  year 
the  legislature  passed  the  first  state  law  regulating  the 
hours  of  labor  for  children  under  18  years  of  age  and  for 
women.92  This  antedates  the  law  of  Massachusetts,  claimed 
to  have  been  the  first  on  the  subject,93  by  fourteen  years, 
and  is  consequently  worth  quoting  at  length : 

SECTION  i.  That  in  all  manufactories,  workshops  and  other  places 
used  for  mechanical  or  manufacturing  purposes,  in  the  state  of  Ohio, 
where  children  under  the  age  of  18  years,  and  women,  are  employed, 
the  time  of  labor  of  the  persons  aforesaid,  shall  not  exceed  10  hours  for 
each  day.  (Employers  who  offended  were  to  be  fined  from  $5  to  $50,  and 
all  fines  were  to  be  used  for  the  support  of  the  common  schools). 

SECTION  2.  That  in  all  engagements  to  labor  in  any  mechanical  or 
manufacturing  business,  a  day's  work,  when  the  contract  of  labor  is  silent 
upon  the  subject,  or  where  there  is  no  express  contract,  shall  consist  of 
10  hours. 

As  the  act  was  rather  loosely  drawn,  especially  in  the 
second  section,  which  was  not  expressly  limited  to  women 
and  children,  and  no  provision  seems  to  have  been  made  for 
the  administration  or  enforcement  of  the  law,  it  is  probably 
to  be  regarded  rather  as  a"pious  wish"  than  a  practical 
measure. 

The  need  of  a  new  and  more  commodious  and  better 
built  state  house  had  long  been  felt,  and  after  the  destruc- 
tion of  the  old  one  by  fire  it  became  imperative.  Accord- 
ingly, when  the  pressure  of  financial  stringency  was  re- 
moved, the  legislature  returned  to  the  work,  which  had  been 
begun  in  1838  and  suspended  in  1840.  Three  commissioners 
were  appointed  in  1846  to  take  up  again  the  work  of  build- 
ing.94 The  work  dragged  along  for  six  years  and  then  the 

"Act  of  Feb.  8,  1847. 
"Act  of  March  19,  1852. 

"E.  g.  by  C.  D.  Wright,  Industrial  Evolution  of  the  United  States, 
p.  267. 

"Act  of  Feb.  21,  1846. 


46  FINANCIAL  HISTORY  OF  OHIO  [46 

acting  commissioners  were  removed  and  others  appointed, 
for  the  "more  efficient  and  expeditious  completion  of  the 
state  house".  An  act  of  1848  provided  for  the  use  of  con- 
vict labor  in  its  construction,95  and  convicts  from  the  state 
penitentiary  were  employed  to  cut  stone  and  as  laborers, 
thereby  saving  considerable  for  the  state.  It  was  not 
completed,  however,  without  some  suspicion  of  graft.96 
The  state  house  then  erected  still  serves  the  state,  though 
rather  inadequately,  and  stands  as  a  monument  to  the 
architectural  taste  of  the  designer  and  the  efficiency  of  the 
builders. 

Since  the  inauguration  of  the  system  of  state  taxation 
by  means  of  a  general  property  tax  in  1825  the  state  had 
grown  greatly  in  population  and  wealth;  new  forms  of 
property  had  come  into  existence  and  new  sections  of  the 
state  had  been  settled.  The  law  of  1825  had  exempted 
numerous  forms  of  property  from  taxation,  and  although 
this  was  largely  corrected  by  the  act  of  1831,  the  system 
was  still  very  unequal  and  full  of  favoritism  and  incon- 
sistencies. Accordingly  the  act  of  March  2,  1846,  was 
passed,  "for  levying  taxes  on  all  property  in  this  state 
according  to  its  true  value".  The  general  property  tax, 
which  had  simply  been  initiated  in  1825,  was  now  intro- 
duced in  modern  form,  with  the  necessary  administrative 
machinery,  and  an  effort  was  made  to  tax  all  property  in 
the  state  with  some  few  exceptions.  It  was  slightly 
amended  by  two  minor  acts,97  and  was  then  entirely  re- 
pealed and  replaced  by  the  long  act  of  March  25,  1851, 
wrhich,  however,  introduced  few  changes  except  the  exten- 
sion of  the  list  of  property  exempt  from  taxation.  Hardly 
had  this  act  been  passed  when  it  was  rendered  obsolete  by 
the  adoption  of  the  new  constitution,  and  was  swept  out 
of  existence  together  with  a  mass  of  other  legislation. 


"Act  of  Feb.  24,  1848. 

**See  chapter  III,  on  Financial  Administration. 

"Feb.  8,  1847,  Feb.  22.  1848. 


47]  ECONOMIC  AND  FINANCIAL  HISTORY  47 

THE  CONSTITUTION,  CURRENCY,,  AND  CORRUPTION. 

For  almost  half  a  century  no  change  had  been  made  in 
the  fundamental  law  of  the  state,  and  the  constitution 
that  had  been  framed  for  a  pioneer  population  of  50,000 
scattered  agriculturists  did  not  meet  the  needs  of  a  larger 
and  more  heterogeneous  population  with  diversified  in- 
terests. An  attempt  to  call  a  constitutional  convention  in 
1820  had  been  defeated  by  the  decisive  vote  of  29,315  to 
6,987,98  although  only  about  one-third  of  the  qualified 
voters  of  the  state  expressed  their  preference  on  the  ballot. 
In  1851,  however,  it  was  decided  to  amend  the  old  constitu- 
tion. The  convention  that  was  called  at  this  time  con- 
sisted for  the  most  part  of  representatives  of  the  agricul- 
tural interests  of  the  state,  and  were  animated  by  a 
determination  to  subject  the  corporations,  and  especially 
the  banks,  to  taxation  equal  to  that  borne  by  the  rest  of  the 
community.  They  accordingly  embodied  in  the  new  con- 
stitution the  requirement  of  equal  taxation  and  uniform 
treatment  of  all  property,  corporate  as  well  as  individual. 

One  great  improvement,  involving  an  enormous 
economy  of  time  and  effort  to  the  general  assembly,  was 
the  passage  of  a  general  incorporation  act  in  1852."  Thus 
the  local  laws  passed  by  the  session  of  1850  comprised  709 
pages,  as  opposed  to  only  98  pages  of  general  acts.  Of 
these  local  acts  the  majority  related  to  the  incorporation 
or  amendment  of  the  charters  of  corporations.  For  in- 
stance, in  1850  there  were  42  acts  to  incorporate  turnpike 
companies,  and  about  as  many  more  to  repeal  or  amend 
previous  incorporation  acts;  in  1851  there  were  21  acts 
to  incorporate  rail-road  companies,  29  acts  to  amend 
previous  incorporation  acts,  and  36  other  acts  re- 
lating to  subscriptions,  stock,  and  other  business  of  rail- 
road companies.  On  the  other  hand,  in  1852,  after  the 
passage  of  the  general  incorporation  law,  there  were  only 
24  local  acts  passed  during  the  whole  session,  and  most  of 

MHo.  J.,  1820,  p.  12. 
"May  3,  1852. 


48  FINANCIAL  HISTORY  OF  OHIO  [48 

these  related  to  counties  and  townships.  A  more  striking 
example  of  the  value  of  such  a  general  act  would  be  difficult 
to  find.  The  session  of  1852  was  a  long  and  hard  working 
one,  continuing  until  May  3.  The  time  was  taken  up  largely 
with  overhauling  and  codifying  and  reenacting  laws,  so  as 
to  bring  them  into  conformity  with  the  new  state  constitu- 
tion. 

One  of  the  results  of  their  labor  was  a  long  and  care- 
fully worded  act,100  applying  the  principles  of  the  constitu- 
tion— "an  act  for  the  assessment  and  taxation  of  all  prop- 
erty in  this  state,  and  for  levying  taxes  thereon  according 
to  its  true  value  in  money".  This  was  a  thorough-going 
attempt  to  tax  all  property  uniformty  under  the  same  law, 
which  has  since  given  so  much  trouble  in  the  taxation  "of 
corporations,  but  which  has  so  far  resisted  all  efforts  to 
change  it,101  although  amendments  to  the  constitution  have 
been  repeatedly  urged.  In  addition  to  the  tangible  real  and 
personal  property  hitherto  taxed,  money  and  credits, 
securities  of  every  sort,  corporations,  and  banks  were 
specifically  enumerated  and  listed.  The  list  of  property 
to  be  returned  was  lengthened,  and  the  duties  and  powers 
of  officers  entrusted  with  the  assessment  and  collection  of 
the  taxes  employed.  Numerous  amendments  corrected  the 
faults  of  the  original  act,  and  closed  the  doors  to  evasion 
and  fraud. 

The  banks  resisted  the  act  vigorously  and  refused  to 
pay  taxes  levied  under  its  provisions,  questioning  its  fair- 
ness and  its  constitutionality.  In  consequence  the  legisla- 
ture in  the  following  year  directed  a  savage  act102  against 
them,  giving  the  county  treasurers  the  right  to  seize  coin 
and  securities  if  the  tax  were  not  paid,  and  imposing  pen- 
alties of  $1000  fine  or  imprisonment  in  jail  for  60  days,  or 
both,  for  any  official  who  concealed  coin  or  securities  for 

100Act  of  April  13,  1852. 

mln  the  elections  of  Nov.,  1909,  the  voters  approved  of  a  constitu- 
tional convention  to  revise  the  constitution.  This  section  will  undoubtedly 
be  changed  by  the  convention  now  in  session  (March,  1912). 

102Act  of  March  14,  1853. 


41) J  ECONOMIC  AND  FINANCIAL  HISTORY  49 

the  purpose  of  evading  the  tax.  Not  until  after  four  years 
of  constant  struggle  between  the  banks  and  the  legislature 
was  this  act  repealed,103  and  a  compromise  effected  by 
which  they  were  taxed  very  clumsily  upon  their  business104 
instead  of  their  property.  The  following  year  a  constitu- 
tional amendment  was  presented  to  the  people  on  the 
subject  of  the  separate  taxation  of  banks.  It  was  provided 
that  in  voting  on  this  proposition  the  voter  should  write 
on  his  ballot  the  words:  "Bank  and  individual  taxation 
equal — yes;  bank  and  individual  taxation  equal — no".  This 
looks  like  a  shrewd  method  of  defeating  the  proposed 
amendment,  and  the  banks  evidently  so  regarded  it,  for 
upon  its  rejection,  they  again  resisted  the  collection  of  the 
tax,  and  the  law  of  March  14,  1853,  wasi  virtually  re-en- 
acted.105 Although  they  succeeded  in  breaking  down 
these  laws  in  the  courts,  the  banks  were  finally 
forced  to  yield,  as  their  charters  needed  renewing;  while 
other  banks,  whose  charters106  guaranteed  them  other 
methods  of  taxation,  were  induced107  to  assent  to  the  pro- 
visions of  the  general  tax  law  of  1852. 

The  burden  of  high  taxes  was  more  than  once  com- 
plained of  during  this  period,108  and  they  certainly  showed 
an  alarming  increase.  Between  1846  and  1859  the  aggre- 
gate taxes  increased  255  per  cent. ;  the  rate  of  increase  for 
the  state  taxes  being  165  per  cent.,  and  for  local  taxes 
329  per  cent.109  The  state  taxes  made  up  barely  one- third 
of  the  total,  so  that  complaints  were  more  justly  directed 
against  the  local  taxes,  especially  those  levied  by  the 
counties.  It  was  estimated  in  1853  that  the  total  state  and 
local  taxes  constituted  an  annual  exaction  of  $25  from 
every  voter  and  of  nearly  $6  from  every  individual  in  the 

"Act  of  Feb.  26,  1857. 

"Act  of  April  i,  1856. 

"Act  of  April  12,  1858. 

"Under  act  of  Feb.  24,  1845. 

"Act  of  April  8,  1856. 

""Gov.  Mess.,  1855,  p.  10 ;  1859,  p.  93;  aud.  rep.,  1854. 

°*Rep.  Com'r  of  Stat.  Exec.  Doc.,  1859,  I,  799. 


50  FINANCIAL  HISTORY  OF  OHIO  [50 

state.110  In  addition  to  these  taxes  there  were  considerable 
fees  paid  to  county,  township,  and  other  local  officers.  But 
the  taxes  had  not  grown  any  faster  than  the  wealth  of  the 
people  and  their  taxable  property. 

At  no  former  period  in  the  history  of  the  state  [wrote  the  auditor  in 
1854'"]  has  her  population,  and  the  various  avocations  in  which  they  are 
engaged,  been  more  abundantly  prospered,  than  in  the  golden  era  in 
which  they  are  now  embarked. 

The  following  year  witnessed  a  slight  set-back  and  the 
auditor  noted  "the  financial  embarrassments  which  have 
prevailed  among  states  as  well  as  individuals"  during  the 
year,  in  spite  of  which  Ohio  discharged  all  current  liabili- 
ties, paid  the  interest  of  the  public  debt,  and  redeemed 
almost  $700,000  of  the  principal. 

Provision  had  been  made  by  the  law  of  February, 
1825,  which  provided  for  the  construction  of  the  canals  and 
created  the  state  debt,  for  the  establishment  of  a  sinking 
fund,  by  which  the  debt  should  be  paid.  During  the  period 
of  state  encouragement  of  internal  improvements,  however, 
this  fund  had  been  used  to  provide  means  for  additional 
undertakings  without  resorting  further  to  taxation.  In 
1848112  the  plan  of  a  sinking  fund  was  revived,  and  three 
years  later  was  made  compulsory  by  the  constitution.  The 
provisions  of  the  constitution  were  carried  out  by  the  act 
of  1853,113  which  provided  for  an  appropriation  for  the 
current  year  of  $100,000,  and  for  each  year  thereafter  com- 
pounding at  the  rate  of  6  per  cent,  per  annum  until  the 
debt  should  be  paid.114 

The  decade  was  characterized  by  loose  financiering,  and 
even  by  graft  and  corruption,  for  the  statute  books  of  this 
period  are  full  of  enactments  designed  to  check  abuses. 
In  1856  three  joint  investigating  committees  were  ap- 
pointed to  investigate  (1)  the  acts  of  all  public  agents 

ll°Gov.  Mess.  Exec.  Doc.,  1853,  p.  n. 
mAud.  rep.,  Feb.  12,  1853. 
^Act  of  Feb.  24,  1848. 
"•Act  of  March  14,  1853. 

n*See  my  article  on  The  State  Debt  of  Ohio,  in  Journal  of  Political 
Economy,  May,  1911,  p.  390. 


51]  ECONOMIC  AND  FINANCIAL  HISTORY  51 

who  have  or  had  the  custody  or  disbursement  of  public 
moneys;  (2)  the  acts  of  the  board  of  public  works;  and  (3) 
all  the  transactions  and  expenditures  about  the  new  state 
house,  the  penitentiary,  the  three  lunatic  asylums,  the 
blind,  and  deaf  and  dumb  asylums.115  This  was  followed 
the  next  year  by  an  act  which  provided  that  all  state  officers 
should  keep  accurate  and  distinct  accounts.110  Meanwhile, 
however,  the  treasury  had  been  looted  and  in  June,  1857, 
when  it  was  necessary  to  provide  funds  for  the  payment 
of  the  semi-annual  interest  on  the  state  debt,  the  state 
treasurer  confessed  to  a  defalcation  of  over  $580,000. 
Subsequent  investigations  raised  this  amount  to  $744,000. 
A  commission  appointed  the  following  year117  to  investi- 
gate the  subject  discovered  that  the  misappropriation  of 
state  funds  ran  back  almost  a  decade  and  involved  the 
good  name  of  two  state  treasurers,  while  the  officials  of 
various  banks  were  not  altogether  free  from  blame  or 
from  suspicion  of  sharing  in  the  spoils.118 

MATERIAL  DEVELOPMENT:  AGRICULTURE  AND 
TRANSPORTATION. 

In  spite  of  official  corruption,  of  disordered  currency, 
and  of  the  prostration  of  credit  resulting  from  the  panic 
of  1857,  the  material  development  and  prosperity  of  Ohio 
proceeded  without  abatement.  During  the  panic  year  of 
1857  the  harvests  were  abundant,119  and  the  general  health 
unbroken. 

"'Act  of  April  ii,  1856. 

"'Act  of  April   16,   1857. 

"'April  12,  1858. 

""See  below,  p.  88. 

"The  wheat  crop  for  this  year  was  the  largest,  with  one  exception, 
in  the  history  of  the  state  (3rd  an.  rep.  Com'r  of  Stat.  Exec.  Doc.,  1859, 
I,  767).  The  following  table  shows  the  crops  in  millions  of  bushels: 

1849 14.4  bu.          1854 1 1.8  bu. 

1850 31.0  bu.          1855 19.5  bu. 

1851 25.3  bu.          1856 15.3  bu. 

1852 22.9  bu.  1857 25.3  bu. 

1853 17.1  bu.          1858 17.6  bu. 


52  FINANCIAL  HISTORY  OF  OHIO  [52 

No  year  [wrote  the  governor120]  since  the  organization  of  the  state  gov- 
ernment, has  been  more  conspicuously  distinguished  by  substantial  in- 
crease in  all  the  elements  of  real  wealth,  permanent  power,  and  true 
greatness. 

The  panic  affected  Ohio  but  slightly,  and  though  the 
suspension  of  specie  payments  was  general  in  the  eastern 
states,  not  a  bank  in  the  Ohio  valley  found  it  necessary  to 
resort  to  this  expedient.  The  state  was  still  predomin- 
antly agricultural,  probably  four-fifths  of  the  total  popu- 
lation being  engaged  in  farming.121  Practically  all  of  the 
25,776,960  acres  of  land  in  the  state  had  now  been  reduced 
to  private  ownership,  and  was  in  the  hands  of  270,000 
proprietors,  exclusive  of  the  owners  of  town  lots,  each 
cultivator  holding  on  an  average  about  90  acres. 

During  this  period  a  new  plant,  sorghum,  was  intro- 
duced into  Ohio,  probably  about  1852.  By  1857  the  prac- 
ticability of  its  culture  had  been  fully  demonstrated,  an 
event  of  which  the  governor  said  "no  single  fact  .... 
is  probably  of  greater  importance".122  It  is  interesting 
to  note  in  passing  that  this  was  the  only  commercially 
important  plant  introduced  into  the  United  States  during 
the  century  after  the  adoption  of  the  Constitution.123  An 
exaggerated  idea  of  the  importance  of  this  plant  as  a  sub- 
stitute for  sugar  cane  was  entertained  at  first  and  con- 
siderable land  was  planted  with  it ;  and  an  especial  impetus 
was  given  to  its  culture  by  the  Civil  War,  which  cut  off 
the  southern  supply  of  sugar.  The  statistics  of  production 
were  given  for  the  first  time  in  1863,  and  by  1866  the  pro- 
duction of  both  sugar  and  molasses  had  doubled,  the  prod- 
uct for  this  year  being  55,147  pounds  of  sugar  and  4,696,- 
089  gallons  of  molasses,  which  sold  for  75  cents  a  gallon. 
The  culture  of  the  plant  was  similar  to  that  of  corn,  and 
the  yield  was  about  75  dollars  an  acre.124  The  number  of 
acres  planted  with  sorghum  was  46,239  in  1866,  but  de- 

""Gov.  Mess.  Jan.  4,  1858,  Exec.  Doc.,  1857,  I,  347. 
"Gov.  Mess.  Jan.  6,  1862.  Exec.  Doc.,  1861,  I,  333. 
""Gov.  Mess.  Exec.  Doc.,  1857,  I,  349. 
1MSee  my  Economic  History  of  the  United  States,  p.  67. 
"'Rep.  Com'r  of  Statistics.     Exec.  Doc.,  1867,  I,  940. 


53]  ECONOMIC  AND  FINANCIAL  HISTORY  53 

clined  after  that  until  the  crop  became  negligible  and 
dropped  out  of  the  reports. 

During  the  twenty-year  period  from  1840  to  1860 
there  was  a  rapid  filling  up  of  the  middle  states  east  of 
the  Mississippi;  as  most  of  the  settlers  took  up  land  the 
production  of  agricultural  commodities  was  greatly  stimu- 
lated. Even  more  important  were  the  improvements  in 
agricultural  machinery,  which  economized  the  labor  needed 
and  permitted  an  expansion  otherwise  impossible;  and  in 
transportation  facilities,  which  made  it  profitable  to 
market  the  increased  production.  The  aggregate  of  all 
cereal  crops,  including  potatoes,  was  as  follows:  1839— 
71,464,603- bushels;  1849—92,945,164  bushels;  1859—152,- 
349,155  bushels.  This  increase  was  nearly  double  the  ratio 
of  increase  in  the  population.  The  total  products  of  Ohio 
in  1857  were  put  at  $261, 867,500,  and  the  exports  from 
the  state  at  |70,000,000,  leaving  |191,867,500  worth  of 
domestic  commodities  to  be  consumed  at  home.125  Three 
years  later  it  was  estimated  that  Ohio  raised  brendstuffs 
enough,  in  addition  to  feeding  domestic  animals,  for  ten 
millions  of  people,  or  four  times  her  actual  population.126 
At  the  same  time  the  prices  received  for  the  crops  were 
good.127 

The  proportion  of  the  population  and  of  the  capital 
in  the  state  engaged  in  mining,  mechanical  and  manufac- 
turing industries  was  rapidly  increasing.  In  his  annual 
message  for  1856  the  governor  warns  the  legislature  that 

the  financial  burdens  of  the  state  be  not  permitted  to  press,  in  dispropor- 
tioned  measure,  upon  them.  These  pursuits  of  industry  supply  a  great 

™Exec.   Doc.,    1857,   I,   351- 

1MGov.  Mess.  Exec.  Doc.,  1861,  I,  333. 

117  A  comparison  of  prices  received  by  the  farmer  for  his  crops  and 
paid  by  him  for  his  purchases  shows  a  great  improvement  in  his  economic 
well-being  during  the  previous  thirty  years  (Rep.  of  Com'r  of  Stat.  Exec. 
Doc.,  1859,  I,  789)  : 

PRICES. 
YEAR.  WHEAT.  CORN.  SUGAR.  COFFEE. 

1829 $  .50  per  bu.    $  .25  per  bu.    $  .09  per  Ib.    $  .15  per  Ib. 

1858 1.03  per  bu.      .70  per  bu.      -07?4  per  Ib-    -12  Per  Ib. 


54  FINANCIAL  HISTORY  OF  OHIO  [54 

market,  constantly  becoming  greater,  for  the  productions  of  agriculture."8 

He  also  called  attention  to  the  growing  importance  of 
railroads  in  Ohio — 

among  the  instrumentalities  by  means  of  which  intercourse  is  carried  on 
between  different  parts  of  the  state  and  different  sections  of  the  country, 
railroads  may  now  be  regarded  as  the  most  important.129 

In  other  lines  of  material  development,  Ohio's  progress 
was  even  more  marked  during  this  period  than  in  agricul- 
ture. As  early  as  1854  Ohio  had  more  miles  of  railroad  in 
operation  than  any  other  state  in  the  Union,  najmely 
2367 ;  by  1857  the  mileage  had  grown  to  2844,  built  at  an 
estimated  cost  of  |90,000,000.130  Of  352  vessels  built  in 
1856  on  the  waters  of  the  west,  97  boats  with  a  tonnage  of 
29,636  tons  were  built  in  Ohio.131  The  improvement  and 
cheapening  of  transportation  indicated  by  this  growth 
made  possible  a  rapid  development  in  mining  and  manu- 
factures. Between  1840  and  1860  there  was  an  extra- 
ordinary expansion  in  the  mining  of  coal  and  iron,  which 
increased  more  rapidly  than  agriculture  or  population. 
Coal  as  a  fuel  was  coming  more  ajid  more  into  use,  while 
the  use  of  it  for  driving  machinery  was  also  fast  increasing ; 
there  was  also  a  growing  exportation  of  coal  to  the  upper 
lakes,  to  Canada,  and  down  the  Mississippi.132  The  most 
noteworthy  advance  in  manufactures  had  been  in  the  pro- 
duction of  salt,  iron,  wood,  and  distilled  liquors,  all  closely 
related  to  the  extractive  industries.  The  following  table 
presents  some  of  these  facts  concisely  :133 


Year 

Iron 
furnaces 

Pig  iron 

Coal 

Salt 

tons           value 

bu.        |     value 

bu.       |    value 

1840 
1860 

19 
59 

29,959 
105,500 

$   648,975 
3,171,000 

3,513,400 
50,000,000 

$   286,000 
5,000,000 

297,310  |$  89,205 
2,000,000  |  500,000 

™Exec.  Doc.,  1856,  Part  I,  Doc.  No.  10,  p.  435. 

"Ibid. 

•"Gov.  Mess.  Exec.  Doc.,  1857,  I,  351. 

mlst  an.  rep.  Com'r  of  Stat.  Exec.  Doc.,  1857,  II,  517-  In  1846  the 
number  was  52,  with  a  tonnage  of  9616. 

1S23rd  an.  rep.  Com'r  of  Stat.  Exec.  Doc.,  1859,  I,  787. 

""Gov.  Mess.,  Jan.  6,  1862.  Exec.  Doc.,  1861,  I,  333.  The  increase  in 
the  production  of  coal  was  stated  by  the  commissioner  of  statistics  to 
have  been  as  follows:  1840 — 3,513,409  bu. ;  1850—8,000,000  bu. ;  1857— 
46,100,000  bu.  3rd  an.  rep.  Exec.  Doc.,  1859,  I,  787. 


55]  ECONOMIC  AND  FINANCIAL  HISTORY  55 

Indeed  the  growth  of  the  state  in  population  and  re- 
sources during  the  decade  1850-60  was  marvelous.  The 
states  between  the  Alleghanies  and  the  Mississippi  River 
entered  upon  an  era  of  extraordinarily  rapid  railroad  con- 
struction during  this  decade.  Chicago  was  connected  with 
New  York  City  in  1853,  and  the  following  year  the 
Mississippi  was  reached.  Ohio  probably  profited  as  largely 
as  any  other  state  as  a  result  of  these  improvements  in  the 
means  of  transportation,  as  it  was  the  thoroughfare  for  all 
the  through  movements  of  freight.  The  price  of  practically 
all  agricultural  products  was  increased  when  the  outlet 
on  the  seaboard  was  made  cheaper  and  easier,  and  the 
value  of  farm  lands  went  up  at  the  same  time  that  the 
yield  increased.  Some  statistics  taken  from  the  census 
reports  show  a  wonderful  development  for  this  period.134 

PERCENTAGE    OF    INCREASE,    1850-60. 

Population    18  Manufacturing,     Mining    and 

Grain    crops 50            Mechanical   industries 90 

Pig   iron 100        Railroads     700 

Coal  mined 600        Cash  value  all  property 75 

Manufactures    proper 112 

Two  or  three  isolated  and  disconnected  facts  call  for 
mention  at  this  point.  The  constitution  of  1851  had  pro- 
vided for  biennial  sessions  of  the  general  assembly,  but  that 
body  had  evaded  the  constitutional  requirement  by  holding 
regular  sessions  during  the  even  and  adjourned  sessions  in 
the  odd  years.  In  1855  the  legislature  did  not  meet,  but 
this  was  the  only  year  in  which  they  did  not  hold  a  session 
until  1895,  when  biennial  sessions  were  made  an  actual  as 
well  as  a  legal  fact.  There  was  a  steady  growth  in  the 
numbers  and  importance  of  the  German  element  in  the 
population,  many  immigrants  of  this  nationality  having 
found  their  way  to  Ohio,  where  they  had  bought  up  the 
supposedly  deteriorated  farms  from  their  former  careless 
owners.  They  were  now  sufficiently  numerous  to  secure 
the  translation  and  printing  in  German  of  various  public 

"'Quoted  by  Gov.  Chase  in  his  message  of  Jan.  7,  1861. 


56  FINANCIAL  HISTORY  OF  OHIO  [56 

documents;135  the  establishment  of  German  schools  was 
also  authorized  in  Akron,  a  strong  German  settlement,  and 
such  other  places  as  wished  them.130  The  canals  showed 
a  deficit  over  and  above  their  expenses  of  operation  after 
1856,  and  partly  owing  to  this  fact,  and  partly  owing  to 
public  dissatisfaction  with  the  manner  in  wrhich  they  had 
been  administered,  a  movement  began  for  their  sale  or 
lease.  Finally,  in  1861,  they  were  leased  for  a  period  of 
ten  years,  at  an  annual  rental  of  $20,075. 137  For  almost 
twenty  years  after  this  the  canals  practically  cease  to  figure 
in  the  legislative  annals. 

SLAVERY  AND  CIVIL  WAR. 

There  is  clearly  perceptible  during  this  period  a  grow- 
ing friction  over  the  problem  of  slavery  and  the  presence 
of  free  negroes  in  Ohio.  Slavery  had  been  forbidden  in  the 
state,  but  at  the  same  time  measures  were  taken  to  prevent 
the  immigration  of  free  blacks.138  By  reason  of  her  posi- 
tion Ohio  had  developed  a  very  profitable  trade  down  the 
Ohio  and  Mississippi  rivers  with  the  southern  states.  Many 
of  her  citizens  looked  with  favor  upon  slavery,  though 
they  did  not  wish  to  see  it  introduced  into  the  state;  this 
was  particularly  true  of  the  southern  counties  and  of 
Cincinnati,  between  which  and  the  South  the  economic 
ties  were  especially  close. 

As  a  state  it  is  our  interest,  in  Ohio  [wrote  Caleb  Atwater  in  i838139], 
to  leave  slavery  in  the  slave-holding  states  for  a  century  yet,  otherwise 
our  growth  would  be  checked.  The  broad  and  deep  streams  of  wealth, 
numbers,  enterprise,  youth  and  vigor  of  the  slave-holding  states,  now 
rolling  into  Ohio  like  mighty  floods,  would  be  stayed. 

In  order  not  to  lose  their  profitable  trade  and  to  retain 
the  goodwill  of  the  south  during  the  growing  bitterness  of 
the  slavery  controversy,  the  people  of  Ohio,  in  legislature, 

""Act  of  March  24,  1860.  57  O.  L.  92. 

'"Act  of  April  12,   1861. 

137Act  of  May  8,  1861. 

""R.  E.  Chaddock,  Ohio  before  1850,  p.  82. 

^History  of  Ohio,  p.  331. 


57]  ECONOMIC  AND  FINANCIAL  HISTORY  57 

press,  and  public  meetings  endeavored  to  suppress  the 
abolition  movement  in  Ohio,  and  declared  in  favor  of 
letting  the  slave-holding  states  settle  the  problem  for  them- 
selves. The  passage  of  the  national  fugitive  slave  law, 
however,  injected  the  question  into  Ohio  politics  and 
aroused  the  people  to  take  sides  in  the  slavery  controversy. 
The  influence  of  the  southern  members  is  evident  in  the 
repeal  by  the  general  assembly  in  1859  of  various  acts  pro- 
hibiting slave-holding  and  kidnapping  in  Ohio,  though 
such  laws  would  seem  to  have  been  superfluous  in  view  of 
the  provisions  of  the  Northwest  ordinance.  Governor 
Chase,  an  anti-slavery  Republican,  in  his  next  message 
urged  the  re-enactment  of  these  laws  because  of  the  growing 
practice  of  seizing  free  persons,  without  process  of  law, 
under  guise  of  their  being  fugitive  slaves.140  Before  any 
further  legislation  was  enacted  the  outbreak  of  war  ren- 
dered it  useless. 

With  the  actual  outbreak  of  the  Civil  War  Ohio  proved 
herself  thoroughly  loyal,  and  was  among  the  first  states 
to  rally  to  the  support  of  the  federal  government.  Within 
a  week  after  Fort  Sumter  was  fired  on,  the  legislature 
made  generous  provision  for  calling  out  and  equipping 
the  militia.  For  arms  and  equipment  $450,000  was  appro- 
priated; $500,000  additional  to  be  expended  by  the  gov- 
ernor to  carry  into  effect  any  requisition  of  the  president 
of  the  United  States;  and  $50,000  as  an  extraordinary 
contingent  fund  under  the  control  of  the  governor.141  To 
raise  this  money  a  loan  of  $750,000  was  authorized  by  the 
same  act.  Fortunately,  the  condition  of  the  treasury  was 
exceptionally  strong.  "The  finances  of  the  state  have 
not,  for  several  years,"  reported  the  auditor,142  "been  in 
as  good  a  condition  as  they  are  at  this  time".  To  meet 
military  expenses  the  commissioners  of  the  sinking  fund 
in  1861  borrowed  and  paid  into  the  state  treasury  $1,212,- 
134,  which,  with  $345,000  refunded  by  the  United  States 

™Exec.  Doc.,  1859,  II,  59. 

"'Act  of  April  18,  1861.  58  O.  L.  89. 

141Aud.  rep.,  Dec.  27,  1861.  Exec.  Doc.,  1861,  IT,  30. 


58  FINANCIAL  HISTORY  OF  OHIO  [58 

and  some  small  sums  in  addition,  constituted  the  "military 
fund",  which  was  drawn  against  for  military  purposes 
exclusively.  Other  funds  were  also  established  during  the 
war,  such  as  the  soldiers'  allotment  fund,  the  soldiers' 
relief  fund,  etc.,  which  make  a  clear  understanding  of  the 
war  finances  difficult.  Upon  the  conclusion  of  the  war  the 
auditor  reported  that  the  expenditures  of  the  state  for 
military  purposes  during  the  four  years,  1861-65,  was 
$10,410,239.143 

In  addition  to  this  direct  outlay  the  state  also  con- 
tributed its  share  to  the  federal  treasury  by  its  assumption 
of  the  direct  tax  of  $1,587,089,  which  had  been  imposed 
by  Congress  by  act  of  August  5,  1861.  By  prompt  payment 
of  this  tax  Ohio  secured  a  reduction  of  15  per  cent.  To 
raise  the  necessary  money  for  this  purpose,  an  additional 
levy  of  1-K  mills  was  added  to  the  general  property  tax.144 
But  in  spite  of  this  addition  to  the  tax  rate,  the  total 
burden  of  taxation  was  but  slightly  increased  because  of 
great  economies  effected  in  both  state  and  local  expendi- 
ture. The  taxes  too  were  unusually  productive.  Under 
the  stimulus  of  patriotism,  taxes  were  paid  promptly  and 
without  complaint,  while  the  delinquencies  were  never  so 
small:  in  1861  the  collections  amounted  to  99i/£  per  cent, 
and  in  1862  to  99  per  cent.145  The  taxable  valuation  of 
property  in  the  state  increased  in  1863  over  1862  by 
$47,085,952.  At  the  same  time  the  debt  was  being  paid 
off  more  rapidly  than  at  any  other  time  in  the  history  of  the 
state. 

But  Ohio's  loyalty  was  shown  not  merely  by  her  con- 
tribution of  money,  but  even  more  by  the  number  of  men 
she  sent  into  the  field.  On  December  31,  1861,  there  were 
100,224  men  enlisted  in  Ohio  for  the  Civil  War,  of  whom 
77,844  were  for  three  years  and  the  others  for  three 
months.146  A  year  later  the  total  number  of  Ohio  men 

mAud.  rep.  Exec.  Doc.,  1865,  I,  329. 
144Act  of  April  16,  1862.  O.  L.,  p.  52. 
""Aud.  rep.  Exec.  Doc.,  1863,  I,  54- 
1MRep.  of  Adj.  Gen.  Exec.  Doc.,  1861,  II,  164. 


59]  ECONOMIC  AND  FINANCIAL  HISTORY  59 

enlisted  in  the  state  organization  was  170,121,  in 
addition  to  whom  there  were  many  men  in  the  regular 
army  and  navy,  as  well  as  in  regiments  mustered  in 
neighboring  states,  such  as  Indiana  and  Illinois.147  In 
1863  an  act  was  passed  "to  organize  and  discipline  the 
militia  of  Ohio",  requiring  all  white  males  between  18  and 
45  years  of  age  to  perform  military  duty.148  At  the  end 
of  the  war  the  adjutant  general  reported  that  Ohio  had  sent 
310,650  men  to  war,  or  10,811  more  than  her  quota  under 
various  calls.149  This  was  considerably  more  than  half 
the  number  of  able-bodied  men  between  the  ages  of  18  and 
60,  who  were  estimated  at  554,857  on  December  1,  1864.150 

LABOR,  IMMIGRATION  AND  INDUSTRY. 

The  effect  of  this  wholesale  withdrawal  of  the  active 
laborers  of  the  community  was  gradually  manifest  in  the 
agricultural  and  industrial  operations.  Up  to  the  summer 
of  1863,  the  war  had  produced  no  sensible  effect  on  the 
market  for  labor.  Labor  was  abundant  in  this  state,  and 
she  had  sent  out  100,000  laborers  before  the  diminution 
began  to  be  sensibly  felt  in  the  operations  of  farming.  One 
great  reason  for  this  was  the  introduction  of  agricultural 
machinery.  The  reaper,  mower,  thresher,  etc.,  were  doing 
in  Ohio  the  work  of  50,000  men. 

Notwithstanding  this,  in  1863  the  want  of  labor  was  seriously  felt,  and 
in  1864  the  harvesting  could  not  be  got  through  with  without  the  aid 
of  female  hands  in  many  places,  and  in  some  it  was  scarcely  done 
at  all."1 

As  a  result  of  the  scarcity  of  labor,  there  was  a  falling 
off  in  the  cultivated  land  of  Ohio  to  the  extent  of  more 
than  700,000  acres  between  1862  and  1864.152  The  cereal 

"'Rep.  of  Adj.  Gen.  Exec.  Doc.,  1862,  II,  418. 

"•Act  of  April  14,  1863,  O.  L.  1863,  p.  97. 

"'Exec.  Doc.,  1866,  I,  30. 

130Rep.  Com'r  of  Stat.  Exec.  Doc.,  1864,  I,  755. 

1M8th  an.  Rep.  Com'r  of  Stat.    Exec.  Doc.,  1864,  I,  730. 

atgth  an.  rep.  Com'r  of  Stat.  Exec.  Doc.,  1865,  II,  922. 


60  FINANCIAL  HISTORY  OP  OHIO  [60 

crops  were  diminished  somewhat  in  amount  in  1862  and 
1863  owing  to  drought,  but  the  value  was  greater  than  in 
previous  years;  in  subsequent  years  the  scarcity  of  labor 
was  the  chief  factor  in  reducing  the  output. 

The  agriculture  of  the  state  was  developing  during 
the  war  period,  and  a  more  serious  loss  was  prevented  by 
the  introduction  of  various  improvements,  especially 
agricultural  machinery.  The  commissioner  of  statistics 
enumerated  the  following  causes  of  advance:153  the  intro- 
duction of  agricultural  machinery,  drainage  and  manures, 
the  introduction  of  new  plants,  such  as  Hungarian  grass, 
sorghum,  the  vine,  and  other  fruits,  deep  plowing,  and  the 
spirited  efforts  of  agricultural  societies.154  The  diversifica- 
tion of  crops  and  changes  in  methods  of  culture  were  evi- 
dence of  the  increasing  competition  of  the  newer  states  in 
the  growing  of  the  great  staple  crops  of  corn  and  wheat. 
The  production  of  these  had  practically  reached  their 
limits  in  Ohio,  and  were  now  being  displaced  or  supple- 
mented by  crops  requiring  more  intensive  cultivation.  The 
culture  of  flax,  clover  seed,  potatoes,  fruit,  sorghum,  and 
tobacco  wrere  all  increasing.  This  was  the  same  process 
that  had  taken  place  in  all  the  older  states  as  they  had 
growin  populous;  New  England,  New  York,  and  New 
Jersey  had  all  been  declining  in  the  production  of  grain 
for  many  years.  In  1866  there  were  1,295,530  acres  in  the 
state  planted  in  wheat,  or  almost  half  a  million  less  than 
in  1850 ;  the  crop  was  almost  a  total  failure,  yielding  only 
5,824,747  bushels,  or  one-sixth  of  the  yield  in  1850.  On 
the  other  hand  the  corn  crop  was  a  good  one  and  showed 
an  increase  over  earlier  years.155 

In  1863  a  commissioner  of  immigration  was  appointed 
and  for  the  few  years  the  office  remained  in  existence  some 

"•Exec.  Doc.,  1863,  I,  606. 

1MOhio  received  in  1864  a  grant  of  land  for  agricultural  education, 
under  the  Morrill  act  of  July  2,  1862,  amounting  to  630,000  acres.  As  the 
amount  of  good  land  in  Ohio  open  to  entry  was  only  80  acres  at  that 
time,  she  received  this  in  land  scrip,  which  entitled  her  to  locate  that 
amount  elsewhere  in  the  public  domain. 

1MRep.  Com'r  of  Stat.  Exec.  Doc.,  1867,  I,  932. 


61]  ECONOMIC  AND  FINANCIAL  HISTORY  61 

interesting  information  on  this  subject  was  collected.  As 
no  salary  was  provided  for  the  commissioner,  nor  provision 
made  for  his  going  outside  the  state  and  soliciting  immi- 
grants,150 the  purpose  of  the  legislature  in  establishing  this 
office  could  not  have  been  very  serious.  The  first  incum- 
bent of  the  office,  however,  Benno  Speyer,  a  German  Ameri- 
can, took  his  appointment  very  seriously,  and  visited  Eu- 
rope at  his  "own  exclusive  expense"  for  the  purpose  of  dis- 
seminating information  as  to"  the  advantages  Ohio  offered 
the  immigrant.157  In  Europe  he  distributed  pamphlets  and 
information,  chiefly  in  Germany,  where  he  encountered 
some  opposition  from  agents  working  in  the  interests  of 
Brazil  and  Canada,  and  also  of  New  York,  Illinois,  and 
Missouri.  The  two  latter  states  had  especially  favorable 
laws  for  immigrants,  and  attracted  a  great  many.  In  1868, 
of  32,620  immigrants  who  passed  through  Ohio,  3757  re- 
mained in  the  state;  the  greatest  number,  7314,  went  to 
Missouri,  while  5725  went  to  Illinois.  The  following  year 
California  passed  laws  to  induce  immigration,  and  began 
to  attract  an  increasing  number.  During  the  four  calendar 
years  1863-66  the  number  of  immigrants  to  Ohio  was  as 
follows:  1863,  6574;  1864,  8782;  1865,  10,383;  1866, 
15,000.158  The  Germans  constituted  over  two  thirds  of  the 
total  number,  with  English  and  Irish  ranking  next  in 
importance.150 

A  new  industry  of  great  importance  in  the  state  of 
Ohio  was  born  with  the  discovery  of  petroleum  in  1859. 
The  first  official  recognition  of  this  industry  in  the  laws 
was  in  the  act  of  May  1,  1862,100  providing  for  "inspectors 
of  petroleum  oil".  The  general  assembly  raised  the  pay 
of  its  own  members  in  1866  to  $5  a  day  and  $3  mileage  for 
every  25  miles  traveled  to  or  from  home  to  the  state  capital, 

"•Act  of  April  14,  1863. 

mist  an.  rep.  Com'r  of  Immigration,  Oct.  12,  1863.  Exec.  Doc.,  1863, 

II,  799- 

"*Rep.  Com'r  of  Immig.  Exec.  Doc.,  1866,  I,  310. 

lwRep.  Com'r  of  Emigration.  Exec.  Doc.,  1868,  II,  878.     The  name 
of  the  office  was  changed  this  year — why,  it  is  difficult  to  see. 

mO.  L.,  1862,  p.  84. 


62  FINANCIAL  HISTORY  OF  OHIO  [62 

and  also  increased  the  salary  of  the  governor  to  $4000.161 
In  view  of  the  general  rise  of  prices  and  the  growth  of  the 
state  these  payments  were  still  very  modest.  In  1868  the 
legislature  abolished  the  office  of  commissioner  of  statistics, 
but  created  a  bureau  of  statistics  in  the  office  of  the  secre- 
tary of  state  and  directed  that  officer  to  make  an  annual 
statistical  report.162  This  was  done  very  perfunctorily  for 
a  few  years,  when  it  was  finally  entirely  discontinued.  For 
the  student  of  the  economic  or  social  history  of  Ohio  the 
excellent  reports  of  the  commissioner  of  statistics  consti- 
tuted a  storehouse  of  material,  and  their  discontinuance 
is  much  to  be  regretted. 

IThe  legal  rate  of  interest  was  fixed  at  8  per  cent  in 
1869.  As  the  interest  rate  indicates  the  opportunities  for 
profitable  investment,  and  throws  some  light  upon  the 
supply  of  capital  in  a  community,  it  will  be  of  interest  to 
trace  the  changes  from  the  beginning.  By  the  act  of  No- 
vember 15,  1799,  the  legal  rate  of  interest  had  originally 
been  fixed  at  6  per  cent.  The  first  state  act  was  that  of 
December  29, 1804,  which  stated  that 

interest  on  bond,  bill,  promissory  note  or  other  instrument  in  writing 
.  .  .  .  on  all  judgments  ....  and  on  all  decrees  .... 
[should  be]  at  the  rate  of  6  per  cent,  and  no  more,  and  if  any  person 
shall  demand  or  receive  more  than  6  per  cent,  per  annum  ....  that 
person  shall  forfeit  the  whole  amount  of  the  debt  on  which  such  illegal 
interest  was  charged  and  received.18* 

In  1824  this  was  re-enacted,  but  the  penalty  clause  was 
omitted.164  By  act  of  March  14,  1850,  the  maximum  legal 
rate  of  interest  was  fixed  at  10  per  cent ;  but  at  6  per  cent  if 
there  were  no  stipulation  to  the  contrary.165  Governor 
Chase  urged  the  repeal  of  this  law  and  the  reduction  of  the 

1MAct  of  April  2,  1866.  O.  L.,  1866,  p.  65.  Gov.  Tod  had  urged  an 
increase  of  50  per  cent,  in  the  salaries  of  state  officers,  in  his  message 
of  Jan.  4,  1864,  P-  3- 

"*Act  of  April  17,  1868.  The  first  statistical  report  of  the  secretary  of 
state  is  in  Exec.  Doc.,  1868,  I,  297. 

"*O.  L.,  1804-05,  p.  149. 

™0.  L.,  1824,  p.  108. 

mO.  L.,  1850,  p.  87. 


G3]  ECONOMIC  AND  FINANCIAL  HISTORY  63 

maximum  rate.160  On  the  other  hand  the  auditor  advocated 
raising  the  legal  rate,  where  no  stipulation  existed,  to  10 
per  cent :  "Ohio  capitalists  are  to  a  large  extent  investing 
in  New  York,  where  the  rate  of  interest  is  7  per  cent  and 
in  Illinois  and  other  western  and  northwestern  states, 
where  the  rates  are  still  higher."107  In  1869  it  was  provided 
that  the  rate  of  interest  on  any  bond,  bill,  promissory  note, 
or  other  instrument  in  writing,  should  not  exceed  8  per 
cent;  on  all  judgments,  decrees,  etc.,  where  no  stipulation 
was  made,  it  should  not  exceed  6  per  cent.108  This  law  is 
still  in  force.169 

After  the  Civil  War  the  finances  of  the  state  as  well  as 
the  industrial  life  of  the  people  returned  very  speedily  to 
normal  conditions  again.170  The  cessation  of  the  extra- 
ordinary war  expenditures  enabled  the  legislature  in  1867 
greatly  to  reduce  appropriations  and  to  lower  the  tax  rate, 
making  a  saving  over  the  previous  year  of  about 
$3,000,000.171  The  auditor  thought  $500,000  more  could 
be  spared,  and  urged  economy  and  the  cutting  down  of 
unnecessary  expenses.172  The  following  year  he  pointed 
out  the  alarming  growth  of  taxation,  especially  for  local 
purposes,  the  aggregate  of  taxes  for  1867  being  greater 
than  for  any  year  during  the  war.173  Two  years  later  he 
spoke  of  the  "frightful  rate"  at  which  taxes  had  increased 
in  Ohio  during  the  past  twenty  years,  the  largest  propor- 
tion of  which  came  from  expenditures  for  benevolent  iL'St,.- 
tutions,  and  also  for  the  judicial  and  legislative  depart- 

1MGov.  Mess.,  Jan.  3,  1859.  Exec.  Doc.,  1858,  II,  104. 

mAud.  rep.  Exec.  Doc.,  1866,  I,  149.  He  repeated  this  appeal,  with 
additional  arguments  in  1867  and  1868.  Exec.  Doc.,  1867,  I,  64;  1868,  I,  86. 

"•Act  of  May  4,  1869.  O.  L.,  1869,  p.  91. 

'"Bate's  Annot.  Stat.,  §  3179-83. 

"The  governor  wrote  on  Jan.  3,  1865,  "the  machinery  of  the  state 
government  has  worked  so  smoothly  under  existing  legislation,  that  I 
have  few  recommendations  as  to  modifications".  Exec.  Doc.,  1864,  I,  47. 

mGov.  Mess.,  Jan.  6,  1868.  Exec.  Doc.,  1867,  I,  147. 

mAud.  rep.,  Dec.  12,  1868,  p.  94. 

178Aud.  rep.  Exec.  Doc.,  1869,  I,  379. 


64  FINANCIAL  HISTORY  OF  OHIO  [64 

ments.174  The  panic  of  1873  affected  Ohio  in  common  with 
the  rest  of  the  country  and  made  the  high  taxes  prevailing 
especially  burdensome.  Economy  was  urged  upon  the  leg- 
islature by  Governor  Allen  in  1874,175  and  repeated  the 
two  following  years. 

In  1871  Ohio  was  surpassed  in  wheat  production  only 
by  Illinois,  but  the  following  year  a  poor  crop  pushed 
Ohio  down  into  seventh  place.  The  crops  of  1873  and  1874 
were  normal  and  Ohio  in  these  years  held  fifth  and  fourth 
places  respectively.  The  center  of  wheat  production  was 
moving  steadily  to  the  northwest  and  the  great  wheat 
states  of  Minnesota,  Wisconsin,  Iowa,  and  California  were 
taking  the  lead.  In  Ohio,  on  the  other  hand,  the  number 
of  acres  in  wheat  was  steadily  declining;  from  1,667,659 
acres  in  1871  they  fell  to  1,354,569  in  1877.  The  rank  of 
the  principal  wheat  producing  states  in  the  years  1871-4 
was  as  follows  (the  number  in  brackets  beside  Ohio  indi- 
cates the  crop  in  millions  of  bushels)  :  1871,  Illinois,  Ohio 
(22.2),  Pennsylvania,  Indiana,  Wisconsin,  Iowa;  1872, 
California,  Illinois,  Minnesota,  Wisconsin,  Iowa,  Indiana, 
Ohio  (18.0)  ;  1873,  Iowa,  Illinois,  Minnesota,  Wisconsin, 
Ohio  (21.9);  1874, Iowa, Illinois,  Calif ornia, Ohio  (26.8). 17° 
In  the  business  of  pork  packing,  too,  Ohio  had  now  lost  her 
pre-eminence  to  Illinois,  and  the  business  was  moreover 
declining  from  year  to  year.  Between  the  years  1873-4 
and  1874-5  there  was  a  decrease  in  the  number  of  hogs 
slaughtered  in  Ohio  of  25,891  and  an  increase  of  those  in 
Illinois  of  233,915.177 

Ohio  was  now  no  longer  predominantly  an  agricultural 
state ;  manufacturing  and  mining  and  commercial  pursuits 
absorbed  an  increasing  proportion  of  the  labor  and  capital 
in  the  state.  Unpleasant  evidence  of  this  fact  was  given  by 
the  riots  in  Cincinnati  and  in  the  Hocking  Valley,  and  by 

174Aud.  rep.,  Dec.  15,  1871,  p.  200. 
17SGov.  Mess.  Exec.  Doc.,  1874,  I,  "• 

""Stat.  rep.,   Sec.  of   Stat.  Exec.  Doc.,   1872,  I,    149;   1874,   II,  297; 
1875,  I,  548. 

1T7Stat.  rep.,  Sec.  of  State.  Exec.  Doc.,  1875,  I.  605. 


65]  ECONOMIC  AND  FINANCIAL  HISTORY  05 

the  great  strikes  of  May,  1886.  Business  of  every  kind 
was  then  suffering  from  the  industrial  depression  of  1884 
and  the  subsequent  years.  Many  of  the  most  important 
industries  were  suspended  and  thousands  of  laborers  were 
without  employment.  By  1889  general  prosperity  had  re- 
turned and  the  governor  was  able  to  congratulate  the  legis- 
lature upon  the  improved  conditions  both  of  the  people  and 
of  the  state  treasury.178 

On  Washington's  Birthday,  1887,  the  legislature  re- 
pealed the  so-called  "Black  Laws",  which  had  provided  for 
separate  schools  for  colored  children  and  prescribed  pen- 
alties for  the  intermarriage  of  white  and  colored  persons.179 

Beginning  with  the  year  1893  Ohio  entered  upon  the 
policy  of  deriving  a  larger  state  revenue  from  corporations, 
especially  those  engaged  in  transportation  and  communica- 
tion, and  leaving  the  general  property  tax,  particularly 
the  tax  on  realty,  to  the  local  governments  for  local 
purposes.  The  segregation  of  the  sources  of  revenue  for 
state  and  local  purposes  has  since  been  carried  almost  to 
complete  realization.  In  1903  the  state  debt  was  finally 
expunged,  seventy-eight  years  after  its  first  creation.  At 
the  same  time  the  canals,  to  build  which  the  debt  was 
chiefly  incurred,  were  rescued  from  the  decay  into  which 
they  were  falling,  and  increased  appropriations  were  made 
to  repair  and  improve  them. 

In  conclusion  we  may  briefly  characterize  Ohio's  in- 
dustrial position  at  the  beginning  of  the  twentieth  century. 
Between  1850  and  1905  the  number  of  industrial  estab- 
lishments in  Ohio  has  increased  from  10,622  to  13,785;  the 
capital  from  $29,000,000  to  $857,000,000 ;  and  the  average 
number  of  wage-earners  from  51,491  to  364,298.180  There 
has  been  a  large  growth  in  the  manufacturing  and  mechan- 
ical industries  of  the  state  during  the  past  half  century, 
and  the  population  has  steadily  become  more  industrial 

1TSGov.  Mess.  Exec.  Doc.,  1889,  I,  iii. 

"'Act  of  Feb.  22,  1887.  O.  L.,  1887,  p.  34.    This  act  repealed  sec.  4008, 
6987,  and  6988  of  the  Rev.  Stat. 

'"Census  of  Manufactures:  1905.     Ohio.     Bulletin  58. 


66  FINANCIAL  HISTORY  OF  OHIO  [66 

and  less  agricultural.  Of  the  various  causes  which  have 
contributed  to  the  early  development  and  steady  progress 
of  manufacturing  in  Ohio,  the  great  commercial  advantages 
of  the  state  are  undoubtedly  the  most  important.  Water 
communication,  by  lake,  river,  or  canal  has  always  been 
excellent,  and  this  was  early  supplemented  by  the  building 
of  railroads.  The  effect  of  the  water  routes  is  clearly  seen 
in  the  localization  of  some  of  the  great  manufacturing 
centers  on  them.  Among  the  natural  resources  of  Ohio 
are  a  fertile  soil,  extensive  hard-wood  forests,  and  an 
abundance  of  coal  and  natural  gas,  though  the  last  has 
been  nearly  exhausted  by  now.  Waterpower  is  not  very 
extensive. 

Of  the  industrial  establishments  in  Ohio  in  1905,  48 
per  cent  were  owned  by  individuals,  22  per  cent  by  firms, 
29  per  cent  by  corporations,  and  1  per  cent  were  miscel- 
laneous. Thirty-five  per  cent  had  capitals  of  less  than 
$5000;  30  per  cent  of  $5000  to  $20,000;  23  per  cent  of 
$20,000  to  $100,000 ;  11  per  cent  of  $100,000  to  $1,000,000 ; 
and  1  per  cent  of  $1,000,000  or  over.  From  these  figures 
it  is  evident  that  Ohio  is  still  in  the  main  the  home  of  the 
comparatively  small  individual  undertaking,  though  it 
must  be  said  that  the  number  of  establishments  declined 
slightly  between  1900  and  1905,  showing  a  movement  to- 
wards concentration. 

The  manufacture  of  iron  and  steel  is  the  most  import- 
ant industry  in  Ohio,  and  since  1870  the  state  has  ranked 
next  to  Pennsylvania  in  the  whole  United  States.  In  1905 
the  value  of  the  products  was  $152,859,124.  This  is  due 
to  the  presence  or  proximity  of  ore  and  fuel,  as  well  as  to 
her  advantageous  situation  for  the  distribution  of  the  fin- 
ished products.  Closely  allied  to  this  are  the  foundry  and 
machine  shop  products,  which  rank  second  in  Ohio,  with  a 
value  in  1905  of  $94,507,691.  Third  in  rank  come  flour  and 
grist  mill  products,  with  a  value  of  $40,855,566 ;  and  fourth, 
slaughtering  and  meat  packing,  with  products  valued  at 
$26,380,884.  These  last  two  are  more  closely  allied  to 
agriculture  than  pure  manufactures,  and  are  due  to  the 


67]  ECONOMIC  AND  FINANCIAL  HISTORY  67 

large  corn  and  wheat  producing  area  in  or  near  the  state. 
After  these  come  in  order  boots  and  shoes,  malt  liquors, 
cars  and  general  shop  construction,  pottery  and  clay  pro- 
ducts (in  the  production  of  which  Ohio  ranks  first  in  the 
United  States),  men's  clothing,  and  lumber  products.  The 
census  of  manufactures  enumerates  forty  selected  indus- 
tries, but  it  will  not  be  necessary  to  continue  the  list  in 
order  to  show  the  character  of  the  chief  industries  in  Ohio. 


CHAPTER  II 


RECEIPTS  AND  EXPENDITURES. 

EARLY    PERIOD,    1803-1824. 

The  early  accounts  of  the  finances  of  Ohio  are  very 
meager  and  present  no  detailed  information  as  to  receipts 
and  expenditures.  Detailed  statements  of  the  revenues 
were  not  printed  in  the  auditors'  reports  until  1814,  and 
those  of  expenditure  not  until  1822,  with  the  exception  of 
two  isolated  statements,  one  for  the  year  1803  and  the 
other  for  1813.  As  a  matter  of  interest  these  twro  are  here 
given  in  detail,  after  combining  some  of  the  scattered 
items;  for  purposes  of  comparison  the  territorial  budget 
for  1799  is  also  given.  The  act  of  April  16,  1803,1  appro- 
priating these  sums,  was  the  first  appropriation  bill  passed 
after  the  state  was  admitted  to  the  Union. 

APPROPRIATIONS  FOR  1799,  1803,  AND  1813* 


ITEM 

1/99 

1803 

1813 

Contingent    fund3    

$  5,ooo 

$IO,95O 

$  2,034 

Governor    

=;oo 

1,1(12' 

Secretary4  

SO 

5OO 

Judges  

250 

}•      7-3505 

6,400' 

Attorney  general  

400 

1 

Treasurer  

400 

j 

500 

Auditor  

4  CO 

1,900 

Members  of  legislature  

12,000 

6,OOO 

12,626 

Special  Agent  to  Congress  .  .  . 
Distribution  of  laws  

582 

IOO 

1,024* 
830 

Listers  of  land   

2,000 

I.22Q9 

Military    

3-74810 

Interest   and   rent  

1,230 

84 

Printing   

6/8 

548 

1,727 

Furniture  and  repairs   

24 

81 

Stationery,  postage,  and  fuel.. 
Wolf  bounties   

in 

116 

597 
3,94O 

Auditor's  office    

36 

212 

Miscellaneous   . 

30Q 

122 

xChase,  II,  377. 

'Acts  of  Dec.  19,  1799,  and  April  16,  1803.  Rep.  of  Joint  Com.  of 

Finance,  Ho.  J.,  1814,  p.  144.  Similar  appropriation  acts  were  passed  on 

Dec.  9,  1800;  Jan.  23,  1802;  Feb.  18,  1804.  The  members  of  the  legisla- 


69]  RECEIPTS  AND  EXPENDITURES  69 

Even  such  totals  as  were  printed  in  the  legislative 
journals  are  not  very  reliable,  and  do  not  agree  with  one 
another  from  year  to  year.11  No  regular  record  was  kept 
of  warrants  issued  prior  to  the  year  1803,  but  during  the 
six  years  ending  November  10,  1805,  it  appeared  that 
$88,693  of  warrants  had  been  redeemed.  From  the  fact 
that  more  warrants  were  redeemed  than  were  drawn  during 
the  year  1806,  there  appears  to  have  been  a  deficit  on 
November  10,  1805,  of  upwards  of  |9000.  The  first  few 
legislatures  were  compelled  to  resort  to  the  issue  of 
treasury  warrants  in  excess  of  the  available  receipts,  in 
anticipation  of  taxes,  because  of  the  difficulty  of  getting 

tare  must  have  been  very  dependent  on  their  pay  to  meet  their  expenses, 
for  on  Jan.  16,  1804,  they  passed  what  might  be  called  an  "emergency 
appropriation"  of  $4000  for  part  payment  of  the  "wages  of  members 
and  officers  of  members  of  the  general  assembly";  it  was  the  third  act 
of  the  session.  On  Dec.  27,  1804,  they  again  appropriated  $4,400  for 
this  purpose  at  the  opening  of  the  session. 

*The  contingent  fund  was  placed  at  the  disposal  of  the  governor  to 
be  expended  by  him.  That  for  1799  included  items  for  printing,  clerk 
hire,  copying  land  entries,  etc. ;  that  for  1803,  the  payment  of  members 
of  the  constitutional  convention,  the  distribution  of  the  laws  of  the 
state,  the  pay  of  members  of  the  legislature,  printing,  the  state  seal, 
stationary  [sic],  etc. 

*In  1799  this  item  was  for  the  governor's  secretary;  at  the  other 
dates  for  secretary  of  state. 

There  were  included  under  this  single  item  the  salaries  of  governor, 
judges  of  the  supreme  court,  presidents  of  the  courts  of  common  pleas, 
secretary  of  state,  auditor,  and  treasurer. 

"Salary  of  governor,  $900;  clerk  hire,  $212. 

'There  were  three  judges  of  the  supreme  court  at  $1000  each;  four 
president  judges  of  the  courts  of  common  pleas  at  $850  each. 

'Compensation  to  federal  electors. 

•Compensation  to  town  director,  $503;  refund  of  tax  improperly 
collected,  $726. 

"Compensation  to  adjutant  general  and  inspectors  of  brigade,  $1027; 
to  provide  blankets,  etc.,  for  the  Ohio  militia,  $2721. 

"In  view  of  this  fact  reliance  has  been  placed  in  this  study  on  a 
table  prepared  in  1825  by  a  committee  of  audit,  although  the  figures 
differ  slightly  from  those  given  in  the  auditor's  and  treasurer's  annual 
reports,  which  in  turn  do  not  agree  with  one  another.  Table  in  Ho.  J ., 
1825,  pp.  16-20. 


70  FINANCIAL  HISTORY  OF  OHIO  [70 

the  tax  machinery  quickly  in  running  order.  The  lack 
of  specie,  too,  rendered  it  difficult  to  make  the  necessary 
payments  on  the  part  of  the  treasury  and  to  collect  the 
revenue.  The  auditor  was  therefore  required  to  issue 
treasury  warrants  for  |20,  $10,  and  $5,  payable  at  the 
treasury,  and  bearing  interest.12  These  warrants  went  into 
circulation  and  served  the  double  purpose  of  maintaining 
the  credit  of  the  state  and  of  supplying  the  lack  of  cur- 
rency.13 By  1805,  however,  the  governor  was  able  to  con- 
gratulate the  legislature  on  the  increased  revenue  "suffi- 
cient to  justify,  after  this  year,  a  cessation  of  issuing 
paper,  which,  at  our  first  essay  towards  self-government, 
the  legislature  were  compelled  to  resort  to."14 

In  1808  excessive  appropriations  again  left  some  $4000 
of  unredeemed  treasury  warrants  in  circulation.13  The 
following  year  a  loan  of  $9000  was  made  from  the  three 
per  cent,  fund,  thus  avoiding  a  deficit  of  that  amount. 
This  was  the  first  occasion  on  which  was  practiced  that 
method  of  transferring  money  from  one  fund  to  another, 
which  was  later  to  prove  such  a  source  of  confusion  and 
even  deception  in  Ohio  finance.  The  "loan"  was  repaid 
the  following  year  with  interest,  leaving  the  treasury  with 
a  nominal  deficit  of  $290  but  with  unredeemed  warrants 
outstanding  of  over  $12,000.  A  reduction  in  appropria- 
tions and  an  increase  in  revenue  sufficed  to  wipe  out  this 
deficit  the  next  year,  and  by  1812  a  surplus  of  over  $8000 
stood  in  the  treasury.  In  his  report  for  the  next  year  the 
auditor  recommended,16  in  view  of  the  "prosperous  situa- 
tion of  our  finances",  that  the  method  of  drawing  treasury 
warrants  in  small  amounts  with  interest  be  discontinued 
and  that  instead  a  single  warrant  be  drawn  for  each  sep- 
arate account  without  interest.  This  was  done,  though  the 

aE.g.  Act  of  Feb.  18,  1809,  §  2. 
MAud.  rep.  Ho.  /.,  1813,  p.  24. 
"Gov.  Mess.  Ho.  J.,  1805-6,  p.  14. 

"The  calculations   in  the  report  of  the  auditing  committee  of  1825, 
which  state  a  deficit  of  $9000  for  this  year,  are  evidently  in  error. 
MAud.  rep.  Ho.  /.,  1813,  p.  24. 


71]  RECEIPTS  AND  EXPENDITURES  71 

act  stated  that  the  person  to  whom  it  was  due  must  agree 
to  accept  a  single  warrant  for  the  whole  sum.17  A  "mod- 
erate reduction  of  the  present  burdensome  rate  of  taxation" 
was  also  urged.18 

Before  this  suggestion  could  be  acted  upon,  however, 
the  breaking  out  of  the  War  of  1812  necessitated  a  resort 
to  heavier  taxation  and  to  a  policy  of  loans  in  addition. 
The  war  spirit  ran  high  in  Ohio,  and  considerable  was 
spent  directly  in  arming  and  equipping  troops  to  take  part 
in  the  struggle.  Thus  $4000  was  appropriated  to  purchase 
blankets  for  the  Ohio  militia,  in  the  service  of  the  United 
States,  and  $40,000  for  the  purpose  of  paying  bounties  of 
$12  a  month  to  the  members  of  the  militia  who  continued 
under  the  command  of  William  H.  Harrison.19  The  fed- 
eral government  also  levied  upon  the  states.  To  meet, 
partially  at  least,  the  expenses  of  the  war,  a  direct  tax  of 
$3,000,000  was  laid  upon  the  states,  of  which  Ohio's  quota 
was  $104,150.  This  tax  was  apportioned  among  the  states 
on  the  basis  of  the  census  returns  of  population  of  1810,  and 
within  each  state  it  was  even  apportioned  among  the 
counties.  The  option  was  given  the  state,  however,  of 
assuming  the  whole  amount  apportioned  to  it,  and  in  order 
to  ensure  prompt  payment  a  discount  of  15  per  cent,  was 
granted  if  paid  before  February  10,  1814.  Ohio  willingly 
assumed  her  quota  and  by  act  of  December  20, 1813,  appro- 
priated $88,528  for  that  purpose,  having  saved  the  differ- 
ence by  her  early  action.20  To  raise  this  sum,  the  surplus 
of  $26,000  was  used,  together  with  the  proceeds  of  a  loan 
of  $55,000  for  one  year  at  6  per  cent,  from  the  banks  of 
Chillicothe  and  the  Miami  Exporting  Company.21 

In  the  year  1814  the  auditors  report  for  the  first  time 
states  the  sources  from  which  the  revenue  was  derived, 
from  which  we  see  that  $62,000  was  obtained  from  the  tax 

"Act  of  Feb.  19,  1813. 

uHo.  /.,  1812,  p.  24;  Sen.  /.,  1812,  p.  21. 

"Acts  of  Dec.  19,  1812;  Feb.  2,  1813.    Chase's  Statutes,  II,  784,  793. 

"Rep.  of  Com.  on  Direct  Tax,  Ho.  /.,  1814,  p.  51. 

nlbid.,  p.  142.    Act  of  Dec.  20,  1813. 


72  FINANCIAL  HISTORY  OF  OHIO  [72 

on  land.22  As  the  ordinary  expenses  of  the  state  govern- 
ment for  the  past  six  years  had  averaged  less  than  $35,000 
a  year,  the  state's  finances  were  in  a  strong  position.  In 
1814  Congress  levied  a  second  direct  tax  of  |6,000,000, 
which  was  made  annual ;  Ohio's  quota  was  $208,300.  Again 
the  state  accepted  the  burden  promptly  and  almost 
eagerly,23  securing  the  discount  offered  by  her  prompt 
payment.  The  reduced  amount  of  the  tax  was  $177,055, 
which  was  met  by  a  loan  of  $104,000  and  by  the  appropria- 
tion of  a  surplus  of  $25,000  and  of  current  revenues  to  the 
amount  of  $30,000.24  To  provide  the  means  for  meeting 
these  enlarged  expenditures,  the  joint  committee  of  finance 
of  the  general  assembly  recommended  an  addition  of  75  per 
cent,  to  the  present  land  tax,  a  tax  on  bank  stock,  and  a 
tax  on  processes  and  proceedings  in  law  and  equity.25 
These  suggestions  were  adopted,  and  as  a  result 
the  taxes  on  land  increased  from  $62,000  in  1814  to 
$201,000  in  1816.  The  tax  on  processes  and  proceed- 
ings in  court  was  trifling,  and  was  repealed  three  years 
later,  but  the  4  per  cent,  tax  on  the  dividends  of  bank- 
ers brought  over  $5000  into  the  treasury  in  1816.  It 
is  interesting  to  note  that  these  were  the  first  state 
taxes,  other  than  those  on  land,  levied  in  Ohio.  In  1816, 
however,  the  system  of  bank  taxation  was  changed,  and 
the  plan  was  adopted  of  having  each  bank  give  the  state 
one  share  in  every  twenty-five  in  lieu  of  taxes.  After  1817 
the  effect  of  this  plan  is  apparent  in  the  decline  of  the 
revenues  from  this  source. 

The  United  States  direct  tax  of  1816  was  $3,000,000, 
and  for  the  third  time  Ohio  met  her  quota  promptly,  and 

"No  figures  are  given  in  the  auditor's  report  for  1815,  so  details  as 
to  receipts  for  that  year  are  lacking.  The  total  amount  is  given  in  the 
report  of  the  Com.  of  Audit  of  1825.  Ho.  J.,  1825,  p.  16. 

""From  a  full  persuasion  that  it  will  operate  materially  to  aid  the 
general  government  in  its  operations".  Rep.  of  Com.  of  Finance,  Sen.  J., 

1815,  P.  337- 

"The  act  of  Feb.  14,  1815,  authorized  a  loan  of  $155,000  for  one 
year  at  6  per  cent.,  but  the  whole  amount  was  not  necessary. 

KSen.  J.,  1815,  p.  338. 


73]  RECEIPTS  AND  EXPENDITURES  73 

thus  secured  the  discount  for  early  payment.  This  time 
the  legislature  did  not  wait  for  the  tax  to  be  assessed,  but 
authorized  a  loan  to  the  amount  of  $200,000  for  one  year 
at  6  per  cent  ;26  the  following  year  they  authorized  another 
similar  loan  "in  case  Congress  should  continue  in  force 
the  direct  tax";27  but  this  was  not  needed,  as  no  further 
requisitions  were  made  upon  the  states.  The  revenue  from 
the  tax  on  land  for  1816  was  about  $200,000,  and  from 
banks  about  $500;  to  make  up  the  balance  required,  a 
third  loan  of  only  $32,000  was  necessary.  In  1817  the  land 
tax  brought  in  $162,000  and  the  tax  on  banks  $1250,  or 
much  more  than  was  necessary  for  the  ordinary  expenses 
of  government.  Accordingly  the  auditor,  in  his  report  for 
1817,  estimating  the  available  surplus  at  $30,000,  recom- 
mended a  reduction  in  the  rate  of  taxation  to  what  it  had 
been  in  1814,  which  was  done.28  The  legislature,  after 
considerable  discussion,  voted  to  raise  the  per  diem  pay 
of  its  members  from  $2.00  and  mileage,  at  which  it  had 
stood  since  1803,  to  $3.00  per  day.29 

It  is  impossible  to  trace  the  financial  operations  of 
this  period  with  any  accuracy,  for  no  information  exists 
in  the  reports  of  any  state  officer  or  in  the  legislative  pro- 
ceedings to  show  how  the  loans  made  necessary  at  this 
time  were  paid.  But  from  the  fact  that  the  receipts  aver- 
aged over  $200,000  a  year  for  the  five  years  1814-1818  or 
almost  double  what  was  necessary  to  pay  the  direct  tax 
and  to  repay  the  loans,  it  is  safe  to  assume  that  the  loans 
did  not  run  over  one  year  each,  and  were  immediately 
repaid  out  of  the  proceeds  from  the  increased  taxes. 

During  the  year  1818  there  was  a  general  reduction  in 
both  revenue  and  expenditure  and  a  return  to  normal  con- 
ditions. The  finances  of  the  state  were  now  "in  a  flourish- 
ing condition".30  In  1819  there  was  a  decided  decrease  in 

"Act  of  Feb.  7,  1816. 

"Act  of  Jan.  27,  1817. 

"Ho.  J.,  1818,  p.  68. 

"Act  of  Jan.  12,  1816.  Ho.  J.,  1825,  p.  107. 

"Gov.  Mess.  Ho.  J.,  1819,  p.  11. 


74  FINANCIAL  HISTORY  OF  OHIO  [74 

the  returns  from  the  land  tax,  to  $75,000,  and  in  total 
receipts  to  about  $100,000.  In  this  year  for  the  first  time 
appear  the  receipts  from  the  Ohio  penitentiary.  The  year 
1820  was  marked  by  several  events  which  united  to  plunge 
the  state,  which  had  successfully  weathered  the  burden  and 
stress  of  the  War  of  1812,  into  a  deficit.  The  legislature 
first  of  all  reduced  the  rate  of  taxation  about  25  per  cent. 
The  death  of  the  treasurer,  H.  M.  Curry,  revealed  a  defalca- 
tion in  his  accounts  of  $11,112.  And  the  report  of  a  com- 
mittee to  investigate  the  condition  of  the  treasury  showed 
about  $20,000  in  the  treasury  in  depreciated  bank  notes, 
and  paper,  together  with  $6,583  outstanding  loans  to  in- 
dividuals that  had  been  authorized  by  the  general  assembly, 
none  of  which  would  be  collectible  under  two  years  and 
probably  not  then.31  Furthermore,  there  was  owing  to  the 
state  for  back  taxes,  with  interest  and  penalties,  a  sum 
not  less  than  $50,000.  No  arrears  in  taxes  had  been  col- 
lected since  1816. 

This  all  indicated  very  loose  management  of  the 
finances.  Down  to  1816,  during  the  incumbency  of  Benja- 
min Hough  as  auditor,  the  treasury  had  been  economically 
and  efficiently  conducted;  but  his  successor,  R.  M.  Osborn, 
who  wras  auditor  from  1816  to  1830,  was  engaged  in  outside 
enterprises,  paying  little  attention  to  the  duties  of  his 
office,  and  not  safe-guarding  so  carefully  the  finances  of  the 
state.32  The  receipts  fell  off  for  the  year  1819  to  $101,000 
and  for  1820  to  $94,000,  which  might  have  been  sufficient 
for  the  ordinary  needs  of  government,  but  instead  of  reduc- 
ing expenditures  the  legislature  increased  them.  Conse- 
quently, a  deficit  was  estimated  for  the  year  1821  of  $30,000, 
to  meet  which  a  loan  of  $20,000  was  advocated.33  This 
was  not  made,  but  to  tide  over  present  embarrassments  a 
transfer  of  $5000  was  made  to  the  general  fund  from  the 

MHo.  /.,  1821,  p.  355.  The  treasurer  a  year  later  reported  that  only 
$432.50  of  these  loans  had  been  paid  back,  and  that  judgment  was  secured 
against  the  others.  Ho.  J.,  1822,  p.  48. 

MSee  chapter  III. 

"Ho.  J.,  1821,  p.  559. 


75]  RECEIPTS  AND  EXPENDITURES  75 

Virginia  military  district  school  fund.  The  effect  of  this 
shiftless  financiering  was  to  cause  a  depreciation  in  the 
treasury  warrants,  of  which  some  |32,212  were  outstanding 
and  unpaid  on  December  3,  1821.34  To  relieve  this  situa- 
tion, and  probably  also  to  relieve  the  money  stringency 
which  made  itself  felt  after  the  failure  of  the  banks  and  the 
panic  of  1819,  the  legislature  in  the  following  session 
authorized  the  issue  of  treasury  warrants  for  f  10,  $20,  or 
for  any  fraction  between  them.33  Two  years  later  the  faith 
of  the  state  was  pledged  for  the  redemption  of  these  bills.36 

The  legislature  of  1822  faced  a  truly  embarrassing 
situation,  but  acted  resolutely.  Mr.  Thomas  Worthington, 
of  the  committee  on  the  revenue,  brought  in  a  thorough- 
going report.37  He  advised  retrenchment  in  appropria- 
tions, the  suspension  of  the  road  tax  for  one  year — or 
rather  its  application  to  the  deficit  instead  of  to  roads, — 
the  doubling  of  the  tax  on  land,38  and  that  all  treasury 
warrants  bear  interest  at  6  per  cent,  until  redeemed.  While 
this  report  was  not  adopted,  rigid  economies  during  the 
next  two  years  and  a  fifty  per  cent,  increase  in  the  land 
tax  made  it  possible  to  redeem  the  outstanding  warrants 
by  the  spring  of  1823,39  and  to  leave  a  nominal  surplus  of 
almost  $50,000  in  the  treasury.  Of  this  nominal  surplus, 
$33,933  consisted  of  bank  notes  for  which  specie  could  not 
be  obtained  at  the  banks  issuing  them :  $11,081  was  "toler- 
able current" ;  $1,483,  "immediately  lost  to  the  state" ;  the 
rest  doubtful.  Only  one  bank  in  twenty-one  redeemed  any 
of  its  notes,  and  that  one  redeemed  only  $5000  out  of 
$16,000. 

One  of  the  economies  effected  was  a  reduction  in  the 
pay  of  members  of  the  legislature  from  $3.00  per  day,  at 

MAud.  rep.  Ho.  /.,  1822,  p.  41. 
"Act  of  Feb.  2,  1822. 

"Act  of  Feb.  24,  1824.     This  legislation  was  not  repealed  until  1831. 
"Ho.  /.,  1821-22,  pp.  132,  ff. 

MThe  rates  of  the  land  tax  are  given  in  ch.  V,  on  the  General  Prop- 
«rty  Tax. 

"//o.  /.,  1825,  p.  20. 


76  FINANCIAL  HISTORY  OF  OHIO  [76 

which  point  it  had  been  fixed  in  1816,  to  |2.00  a  day.40 
In  1823,  however,  the  same  pressure  for  retrenchment  no 
longer  existing,  the  legislature  restored  its  pay  to  the  figure 
of  1816.  The  effects  of  the  crisis  of  1819  had  now  passed 
away  and  good  times  had  returned.  "It  is  gratifying  to 
state",  wrote  the  governor,41  "that  the  collection  of  the 
revenue  within  the  last  year  has  been  attended  with  less 
difficulty  and  inconvenience  to  our  citizens  than  for  some 
years  past.  It  is  expected  that  the  receipts  of  the  present 
year,  will  be  sufficient  for  the  redemption  of  the  audited 
bills  in  circulation,  amounting  to  about  $30,000,  to  defray 
all  the  expenses  of  the  government  for  the  ensuing  year,  and 
leave  a  balance  in  the  treasury  unexpended".  Improve- 
ments in  the  tax  laws  and  the  remission  of  penalties  on 
delinquent  lands  in  1822,  to  induce  the  prompt  payment  of 
taxes,  were  attended  with  a  very  happy  result  and  the 
revenue  increased  beyond  the  most  sanguine  expectations  ;42 
in  1822  it  was  $51,000  and  in  1823  it  had  grown  to  $85,000. 
A  more  thorough-going  revision  of  the  system  of  taxation 
in  1825,  by  which  numerous  forms  of  personal  property  in 
addition  to  land  were  subjected  to  taxation,  led  to  a  still 
further  increase,  to  $103,000  in  1827.  From  1823  to  1827 
there  was  a  yearly  balance  in  the  treasury  of  between 
$50,000  and  $60,000,  and  the  finances  were  in  a  most  pros- 
perous and  well-managed  condition. 

The  detailed  expenditures  of  the  state  were  published 
by  the  auditor  in  his  annual  report  for  the  first  time  in 
1822,  with  two  isolated  exceptions.  From  this  report  we 
see  that  the  executive,  legislative,  and  judicial  branches 
spent  considerably  more  than  half  the  modest  total.  The 
Ohio  penitentiary  called  for  $10,000,  but  returned  to  the 
state  $2,700;  printing  the  journals,  etc.,  cost  $2,400;  the 
militia  spent  $3,300;  while  $10,600  was  paid  to  counties— 
the  state  here  acting  simply  as  collecting  agent, — and 
$2,200  was  refunded  for  taxes  improperly  collected.  Other 

"Ho.  ].,  1825,  p.  107. 

"Gov.  Mess.  Ho.  /.,  1823,  p.  30. 

42Aud.  rep.  Ho.  J.,  1824,  p.  26. 


77] 


RECEIPTS  AND  EXPENDITURES 


77 


miscellaneous  items  brought  the  total  up  to  f  77,000.43 

PERIOD  OP  INTERNAL  IMPROVEMENTS,  1825-1845. 

The  year  1825  marks  the  beginning  of  a  new  epoch 
in  Ohio  finances.  In  that  year  commenced  the  policy  of 
granting  aid  to  public  improvements,  and  a  beginning  was 

"Among  these  items  is  that  of  bounties  for  wolf  scalps.  This  had 
been  offered  first  in  1795  by  an  act  that  was  copied  from  the  Penn- 
sylvania statutes,  for  the  killing  of  wolves,  foxes,  or  wildcats.  In  1799 
it  was  offered  for  wolves  alone,  because  "the  raising  of  sheep  ought  to 
be  encouraged  in  this  territory" ;  and  in  1802  for  wolves  and  panthers ; 
in  1810  the  panthers  were  eliminated.  As  it  survived  beyond  the  time 
of  its  actual  need,  it  called  into  existence  a  regular  wolf  breeding 
industry.  This  was  recognized  by  the  act  of  1852,  reviving  the  system 
after  its  abolition  in  1851,  which  required  of  the  person  receiving  the 
bounty  an  oath  "that  you  have  not  spared  the  life  of  any  she  wolf  .  .  . 
with  a  design  to  increase  the  breed".  As  the  legislation  was  so  continuous 
and  so  interesting  in  itself  the  acts  and  the  rates  of  bounty  offered  are 
appended.  Quite  as  interesting  was  a  related  act  passed  December  24, 
1807,  "to  encourage  the  killing  of  squirrels".  This  provided  that  all 
persons  subject  to  a  county  tax  should  produce  annually  from  10  to  100 
squirrel  scalps  (the  number  to  be  decided  annually  by  the  trustees)  ;  if 
any  person  failed  to  produce  the  required  number,  he  was  to  be  fined  3 
cents  for  each  one  lacking;  if  he  had  an  excess,  he  should  be  paid  2  cents 
for  each  one  over.  The  table  of  bounties  for  killing  wolves  follows ; 
the  amount  actually  paid  out  for  this  purpose  may  be  seen  in  column  12 
of  the  table  of  expenditures.  (Appendix,  Table  III.) 


Date   of    Act 

Under  6  months 
of  age 

Over  6  months 
of  age 

June  19    I/9S-    •       .... 

$    1.  00 

•  50 
i  .00 
1.50 
.50-3.00 

2.OO 
1.50 
2.50 
2.50 

Repealed  prev 
2.50 
4.00 

$  2.00 

1.25 

2.OO 

3.00 
I  .00-4.00 
4.00 
3.00 
4.25 
.  4.25 

ous  legislation 
4-25 
8.00 

Dec    19,  1799  

Dec.     2,  1800  

Jan.     9,    1802  

Dec    20    1805       .                      

Feb    19,  1810  

Dec    22    1821       .    .                 

Dec    24,   1829  

Feb    9     1831                  

March  25,  1851  

April  26    1852  

April  Q.   i8s6  

The  last  payment  was  made  in  1873,  but  no  law  repealing  them  appears 
in  the  index  of  the  laws. 


78  FINANCIAL  HISTORY  OF  OHIO  [78 

made  in  canal  building.  This  was  a  momentous  step 
financially,  for  it  increased  the  expenditures  greatly,  added 
to  the  taxes,  and  involved  the  state  in  a  debt  which  was  not 
paid  off  for  almost  eighty  years.  A  thorough  revision  of 
the  laws  at  the  same  time  gave  the  state  practically  a  new 
revenue  system.  A  new  method  of  stating  the  receipts  and 
expenditures  was  also  begun,  which  makes  them  not  easily 
comparable  with  the  previous  reports.  In  1829  the  system 
of  book-keeping  changed  also.  Warrants  were  not  all 
issued  by  the  auditor  and  redeemed  by  the  treasurer;44 
but  the  funds  for  canal  purposes  were  transferred  to  a 
board  of  canal  fund  commissioners,  who  checked  them  out 
independently  of  the  auditor.  Consequently,  after  1829 
canal  expenditures  do  not  appear  in  the  auditors'  reports, 
and  a  full  account  of  them  must  be  sought  in  an  account 
of  the  canals  themselves.45 

The  subject  of  the  construction  of  a  canal  across  Ohio 
to  connect  the  Ohio  Elver  with  Lake  Erie  had  been  dis- 
cussed in  the  state  and  broached  to  the  legislature  as  early 
as  1817,  but  no  decisive  action  was  taken  until  1825.  In 
that  year,  after  two  or  three  years  spent  in  preliminary 
surveys,  etc.,  the  work  of  actual  construction  was  begun, 
and  $46,000  appropriated  for  that  purpose.  This  expendi- 
ture appears  in  the  auditor's  reports  for  only  five  years, 
after  which  it  is  transferred  to  the  reports  of  the  board  of 
canal  fund  commissioners  and  of  canal  commissioners.  It 
may,  however,  be  traced  in  column  three  of  the  general 
table  of  receipts  and  expenditures,  in  the  constantly  in- 
creasing gross  expenditures,  which  culminated  in  the  year 
1839. 

The  effect  of  the  new  revenue  act  is  also  clearly  seen 
in  the  increasing  receipts  from  land  and  property,  and  in 
the  more  strict  enforcement  of  the  law.  In  1824  for  the 
first  time  appears  the  item  of  payments  on  land  delinquent 
for  taxes  and  sold  therefor.  The  easy  going  methods  of 

**As  had  been  done  hitherto  under  the  act  of  Feb.  18,  1809. 
**This   will   be  contained   in   a   forthcoming   monograph   on   Internal 
Improvements  in  Ohio. 


79]  RECEIPTS  AND  EXPENDITURES  79 

collection  and  the  remission  of  penalties  for  non-pajanent 
of  taxes  were  stopped,  and  the  law  administered  strictly. 
There  was  a  steady  and  gradual  increase  in  the  revenues 
until  1839,  with  a  temporary  set-back  in  1835,  owing  to  a 
reduction  in  the  tax  rate,  the  first  change  that  had  been 
made  since  1826.4(J  The  tax  on  banks  was  renewed  in  1826, 
the  sale  of  public  lands  began — but  as  the  proceeds  from 
this  were  used  for  canal  purposes  they  were  soon  there- 
after transferred  to  the  control  of  the  board  of  canal  fund 
commissioners — and  other  taxes  were  resorted  to  increas- 
ingly. In  1831  the  property  tax  was  revised,  and  a  number 
of  things  such  as  personal  property  and  manufacturing 
companies  were  taken  out  of  the  exempt  class  and  sub- 
jected to  taxation. 

The  state  government  seems  to  have  been  conducted 
economically  and  well  during  these  years;  the  expenditures 
grew  slowly  and  normally,  keeping  pace  with  the  growth 
of  the  state  in  population  and  wealth.  The  only  item  that 
shows  any  considerable  expansion  is  that  of  expenditures 
for  charitable,  correctional,  and  penal  institutions.  Ohio 
now  entered  upon  the  policy  of  state  care  of  the  dependent 
and  defective  classes,  and  began  to  erect  buildings  in  which 
to  place  them.  In  1829  the  first  appropriation  was  made 
for  the  education  of  the  deaf  and  dumb,  and  in  1833  was 
begun  the  erection  of  buildings  for  this  purpose.  The  first 
appropriation  for  a  lunatic  asylum  was  made  in  1835  and 
for  a  blind  asylum  in  1837,  while  continuous  appropriations 
for  a  new  penitentiary  were  made  during  the  years  1832-39. 
The  total  amount  spent  on  the  construction  and  repair  of 
buildings  for  all  these  purposes  during  these  eight  years 
was  |120,986,  while  the  expenditures  for  care  and  main- 
tenance during  the  same  period  were  $285,725.  On  the 
other  hand,  it  should  be  noted  that  during  the  period 
1838-44  the  Ohio  penitentiary  turned  back  into  the  state 

"The  act  of  March  9,  1835,  fixed  the  state  rate  at  iV*  mlils  on  the 
dollar.  It  had  been  il/2  mills.  In  1830  the  auditor  reported,  "the  receipts 
from  taxation  annually  exceed  our  calculations".  Aud.  rep.  in  Ho.  J., 
1830,  p.  24. 


80  FINANCIAL  HISTORY  OF  OHIO  [80 

treasury  an  average  of  over  $11,000  a  year,  from  the  labor 
of  the  convicts. 

The  canals,  too,  were  economically  and  honestly  man- 
aged down  to  1833  at  least,  and  probably  down  to  1837. 
In  his  report  for  the  latter  year  the  auditor  made  a  detailed 
comparison  of  the  expenditures  in  Ohio  with  those  of  the 
neighboring  states  of  New  York,  Pennsylvania,  and  Ken- 
tucky, and  showed  that  practically  every  item  of  expense 
was  smaller  in  Ohio  than  in  the  other  states.47  But  in 
1837  the  legislature  entered  upon  the  unfortunate  policy 
of  loaning  the  state's  credit  in  support  of  turnpike  and 
canal  companies,  railroads,  and  similar  works  of  internal 
improvement,  and  was  soon  involved  in  debt  to  the  amount 
of  about  $3,000,000.  This  law  was  repealed  in  1840.  In- 
deed this  year  saw  great  economies  along  a  number  of 
lines — -the  loan  law  and  the  law  for  the  erection  of  a  new 
state  house  were  both  repealed,  the  receipts  and  disburse- 
ments of  the  canal  fund  were  brought  under  the  control  of 
the  auditor,  the  number  of  members  on  the  board  of  public 
works  was  reduced,  the  appropriations  for  canals  were 
cut  heavily,  and  in  other  ways  expenses  were  reduced.  The 
most  notable  economy  was  in  the  work  of  internal  improve- 
ments. The  appropriations  for  this  purpose  had  been 
steadily  expanding  until  in  1839  they  reached  the  enormous 
total  of  $366,000,  in  addition  to  the  proceeds  of  loans.  All 
work  was  now  suspended  except  that  necessan*  to  complete 
improvements  almost  finished ;  during  the  five  years  1840-44 
the  appropriations  for  canal  purposes  averaged  only 
$38,000  a  year.  This  economy  permitted  a  reduction  of 
over  half  in  the  gross  expenditures  of  the  state  during  this 
period. 

The  expenditures  for  state  purposes  only  also  show 
a  considerable  decline,  from  $266,000  in  1839  to  $201,000 
in  1845.  Drastic  economies  were  effected  in  every  branch 
of  the  public  service;  a  general  reduction  of  salaries  took 


4TAud.  rep.,  1837,  pp.  13-18. 


81]  RECEIPTS  AND  EXPENDITURES  81 

place,  in  some  cases  even  below  those  of  1813.48  The  year 
1839  measured  the  high- water  mark  of  both  expenditures 
and  receipts.  There  was  then  a  tremendous  shrinkage  in 
the  gross  receipts  of  the  state  treasury,  from  |529,000  in 
1839  to  $164,000  in  1845,  of  which  almost  seven-eighths  is 
attributable  to  the  decline  in  the  general  property  tax  from 
$397,000  in  1839  to  $125,000  in  1845.  Wholesale  evasion 
of  taxes  occurred,  and  the  list  of  delinquencies  grew  alarm- 
ingly. Eloquent  testimony  to  the  hard  times  of  these  years 
is  furnished  by  the  sudden  growth  in  the  item  of  taxes  on 
lands  in  arrears  for  taxes,49  from  $307  in  1836  to  over 
$20,000  in  1844.  The  surplus  in  the  state  treasury  was 
reduced  from  $127,000  in  1838  to  $23,000  the  following 
year,  and  to  $11,000  in  1840.  Not  only  was  the  surplus 
smaller,  but  the  character  of  the  funds,  of  which  it  was 
composed,  deteriorated.  Of  the  nominal  balance  in  the 
treasury  in  1842  of  $64,361,  over  $25,000  consisted  of 
depreciated  funds — certificates  of  deposit  and  notes  of 
failed  or  suspended  banks.50  In  all  these  changes  is  seen 
the  effect  of  the  crisis  of  1837,  which  affected  Ohio  as  it 
did  the  rest  of  the  country,  though  the  full  effects  were  not 
evident  for  a  couple  of  years.  At  no  time,  however,  was 
the  credit  of  Ohio  seriously  affected,  nor  did  she  ever 
repudiate  any  of  her  legitimate  obligations.  Bravely  and 
successfully  she  met  all  burdens  and  was  able  to  weather 
the  storm  that  ruined  the  credit  and  reputation  of  so  many 
of  her  sister  states.  Gradually  the  economies  of  these 
trying  years  restored  order  to  the  finances;  expenditures 
were  kept  well  within  actual  receipts,  loans  were  made  to 


"By  act  of  Jan.  27,  1844,  the  following  salaries  were  fixed:  members 
of  general  assembly,  $2.00  per  day  and  $2.00  for  every  25  miles  traveled; 
governor,  $1000;  secretary  of  state,  $500  and  fees;  auditor,  $730;  treasurer, 
$730;  judges  of  supreme  court,  $1000;  president  judges  of  courts  of 
common  pleas,  $730;  etc.  The  pay  of  members  of  the  general  assembly 
was  raised  again  by  act  of  Jan.  29,  1847,  and  the  rest  of  the  act  was 
repealed  Feb.  7,  1848.  Cf.  table  on  p.  20  above. 

4'See  column  3  in  Table  of  General  Revenue,  in  Appendix. 

"°Aud.  rep.,  1842,  p.   n. 


82  (  FINANCIAL  HISTORY  OF  OHIO  [82 

complete  the  public  works,  and  the  balance  on  hand  steadily 
grew  until  it  amounted  to  f  133,000  in  1844. 

During  the  years  1843  and  1844  the  payments  made 
by  the  auditor's  office  under  the  appropriation  acts  were 
stated  separately  for  each  item  of  appropriation  and  the 
totals  under  each  head  in  the  general  tables  could  be  ascer- 
tained only  with  a  disproportionate  amount  of  labor,  for 
the  system  of  keeping  a  separate  fund  for  each  branch  of 
expenditure  wras  used.  As  there  were  37  of  these  funds 
under  the  general  revenue  fund  alone,  and  the  totals  were 
nowhere  given  by  the  auditor,  it  is  clear  that  to  the  average 
legislator  or  layman  the  great  detail  and  unsystematic 
arrangement  must  have  precluded  any  clear  understanding 
of  the  finances.  The  practice  was  a  common  one  in  state 
finance  of  assigning  sources  of  revenue  to  different  objects 
and  having  all  expenditures  for  that  purpose  defrayed  out 
of  the  "fund"  so  created.  Even  after  the  system  of  dis- 
tributing income  in  this  way  was  given  up,  the  method 
was  maintained  of  keeping  separate  the  different  funds 
for  wrhich  the  appropriations  were  made.  It  wras  then  only 
a  book-keeping  device,  and  served  merely  to  confuse  the 
accounts.  From  a  study  of  receipts  and  expenditures  in 
Ohio,  and  the  steady  growth  of  the  balance  on  hand,  it  may 
safely  be  concluded  that  the  finances  were  economically 
administered  down  to  1844. 

PERIOD  OF  EXTRAVAGANCE  AND  DEFALCATION,  1845-1860. 

In  1845  a  new  method  of  stating  receipts  and  expendi- 
tures begins  in  the  auditor's  reports.  All  receipts  and 
expenditures,  whether  for  the  state  or  for  schools,  or  canals, 
etc.,  passed  through  the  auditor's  office,  and  were  reported 
in  one  set  of  tables ;  these  I  have  called  gross  receipts  and 
expenditures.  Those  for  state  purposes  alone  are  entered 
under  the  head  of  the  general  revenue  fund,  and  correspond 
with  the  figures  hitherto  given  in  the  auditor's  reports.  It 
has  seemed  best  therefore  to  continue  to  trace,  in  the 
detailed  tables  the  net  receipts  and  expenditures  of  the 
state  government,  rather  than  the  gross  revenue  and 


83] 


RECEIPTS  AND  EXPENDITURES 


83 


expense  account  handled  by  the  auditor's  office.  As  a 
specimen  of  the  latter  the  first  statement  under  this  system, 
in  the  auditor's  report  for  1845,  is  given : 


RECEIPTS. 

(1)  State    revenue $    154,533 

(2)  School    revenue 191,235 

(from  l/t  mill  on  grand 

list,  interest  from 
counties  on  surplus 
revenue,  taxes  on  law- 
yers and  physicians, 
banks,  bridge  and  in- 
surance cos.,  from 
auction  duties,  and 
peddlers'  licenses.) 

(3)  Canal    revenue 726,343 

(from    5J/2     mills    on 

grand  list.) 

(4)  Tolls,     water     rents, 

etc.,  on  canals 466,599 

(5)  Miscellaneous   44,746 


DISBURSEMENTS. 

Stare  government $   201,472 

School   funds 282,960 

Canals    307,641 

Interest  on  domestic  debt       44,237 
Interest  on   foreign  debt.  1,033,628 


Total     $1,869,938 

Balance     232,594 


$2,102,532 


Total     $1,583,456 

[Balance  from  1844] 519,076 


$2,102,532 

The  management  of  the  finances  of  Ohio  was  marked 
by  the  most  extraordinary  looseness  and  corruption  during 
the  decade  and  a  half  from  1845  to  1860.  A  crowd  of  pro- 
fessional office-holders  and  grafters  were  in  control  of  the 
state  administration,  and  they  strained  the  resources  of 
the  state  worse  than  had  been  the  case  in  the  days  of 
greatest  legislative  extravagance  during  the  period  of 
internal  improvements.  Hardly  once  in  this  period  were 
the  finances  in  a  normal  condition,  for  no  sooner  was  one 
financial  difficulty  disposed  of  than  another  arose.  Graft 
in  the  construction  of  public  buildings,  embezzlement  and 
defalcation  on  the  part  of  public  officers,  and  laxity  of 
oversight  and  administration  all  contributed  to  the 
financial  disorder.  For  the  ten  years  1845  to  1854  inclusive 
the  disbursements  for  state  purposes  exceeded  the  receipts 


84  FINANCIAL  HISTORY  OF  OHIO  [84 

by  $426,000,  showing  that  appropriations  during  this 
period  far  exceeded  the  legitimate  revenue.  Three  times 
actual  deficits  occurred,  and  the  rest  of  the  time  were 
obviated  only  by  the  existence  of  a  large  cash  balance  in 
the  treasury,  by  transfer  of  money  from  other  funds,  or 
by  loans.  Indeed  the  receipts  exceeded  the  disbursements 
only  four  times  during  this  whole  period.  The  legislature 
must  be  held  in  part  responsible  for  this  condition  of 
affairs,  for  they  did  not  attempt  to  grapple  with  the 
situation  energetically  until  1856.  But  the  corruption  was 
deep-seated  and  involved  bank-presidents,  contractors,  and 
public  officials  in  a  general  raid  upon  the  state  treasury. 

A  new  revenue  law  was  passed  in  1846,  which  really 
introduced  the  system  of  the  general  property  tax  into 
Ohio,  and  made  a  determined  effort  to  tax  personal  prop- 
erty as  well  as  realty.  At  the  same  time  a  revaluation  of 
the  real  property  of  the  state  added  considerably  to  the 
amount  of  this  form  of  property  subject  to  taxation.  The 
effects  are  clearly  seen  in  a  prompt  increase  of  receipts 
from  this  source  and  of  revenue  for  state  purposes.  But, 
rapidly  as  the  revenues  grew,  the  appropriations  expanded 
even  more  rapidly.  The  fiscal  year  1844  had  closed  with 
a  very  respectable  balance  of  $133,000  in  the  treasury. 
This  was  cut  down  to  $86,000  the  following  year  by  appro- 
priations which  were  over  $50,000  in  excess  of  revenue; 
those  for  1846  were  $30,000  in  excess.  Appropriations  for 
1847  were  quite  as  large,  but  a  large  increase  of  over 
$60,000  in  receipts  fortunately  restored  the  shrinking 
balance,  and  obviated  the  deficit  which  such  a  policy  would 
ultimately  make  inevitable.  The  legislature  took  advantage 
of  this  favorable  opportunity  to  raise  the  pay  of  its  own 
members,  restoring  them  to  the  level  that  had  existed 
before  the  reduction  in  1844,  namely  $3.00  a  day  and  $3.00 
for  each  twenty-five  miles  travel.  This  pay  was  limited, 
however,  to  a  session  of  sixty  days  only ;  after  that  it  was 
only  $1.00  a  day,  a  rate  of  remuneration  that  ensured  short 
sessions. 

The  appropriations  were  largely  increased  again  in 


85]  RECEIPTS  AND  EXPENDITURES  85 

1849  and  1850,  without  any  corresponding  tax  being 
authorized  by  the  general  assembly  to  meet  the  payment 
of  the  additional  appropriations.51  There  was  an  actual 
deficit  the  latter  year  of  $83,000.  In  his  report  for  1850 
the  auditor  warned  the  legislature  that  such  a  course  left 
"only  one  alternative — the  general  assembly  must  provide 
for  borrowing  the  money,  or  adequate  taxes  must  be  levied 
to  make  up  the  deficit".  The  latter  was,  however,  the  last 
thing  the  legislature  wished  to  do,  as  the  constitutional 
convention  was  even  then  revising  the  constitution  and  a 
change  in  the  tax  laws  was  probable.  Things  were  there- 
fore permitted  to  drift  for  another  year,  when  appropria- 
tions almost  $100,000  in  excess  of  revenue  swelled  the 
deficit  to  unmanageable  proportions — $195,534.  On 
November  16, 1851,  the  excess  of  expenditures  over  revenue 
had  reached  an  aggregate  of  $225,021.52  This  situation 
was  met  by  permitting  the  money  raised  for  the  payment  of 
the  debt  and  subject  to  the  control  of  the  sinking  fund 
commissioners,  to  remain  in  the  treasury,  where  it  was 
used  to  pay  the  ordinary  expenses  of  government.53  The 
auditor  warned  the  legislature  that  the  light  tax  of  one 
mill  on  the  dollar  then  in  force  would  not  be  sufficient  to 
liquidate  this  overdraft  in  addition  to  the  ordinary  expendi- 
tures of  the  year,  and  urged  heavier  taxation.  Moreover 
the  auditors'  reports  for  1852  and  1853  pressed  upon  the 
legislature  the  necessity  of  limiting  the  appropriations  to 
the  amount  of  revenue  which  would  accrue  under  the  tax 
levy  of  the  previous  year,  "but  in  neither  case  was  the 
advice  regarded".54  At  the  same  time  that  the  treasury 
was  so  embarrassed  for  want  of  funds  the  prosperity  of  the 
people  in  this  "golden  era"  is  commented  upon,55  showing 
that  the  shiftless  financiering  of  the  legislature  was  not  due 
to  the  poverty  of  the  people. 

MAud.  rep.,  1850. 

"Special  rep.  of  aud.,  Feb.  12,  1853. 

"Spec.  rep.  of  aud.,  Jan.  2,  1852. 

MAud.  rep.,  Dec.  26,  1853. 

"Spec.  rep.  of  aud.,  Feb.  12,  1853. 


86  FINANCIAL  HISTORY  OF  OHIO  [86 

The  sinking  fund  was  now  exhausted,  so  that  resort 
to  that  again  was  impossible,  but  the  line  of  least  resistance 
was  once  more  followed,  and  instead  of  raising  additional 
taxes,  the  legislature  transferred  $250,000  of  the  surplus 
revenue  fund,50  which  had  been  loaned  to  the  counties,  to 
the  general  revenue  fund  for  state  expenditures.57  Ex- 
travagant appropriations  for  this  and  the  next  year  again 
plunged  the  state  into  debt,  the  deficit  for  1854  amounting 
to  $44,000,  but  this  time  relief  was  found  in  great 
economies  in  expenditure  the  next  session,  combined  with 
largely  increased  revenues.  Part  of  the  increase  in  appro- 
priations was  due  to  the  raising  of  the  level  of  salaries 
for  the  judiciary  and  members  of  the  legislature  after  the 
adoption  of  the  new  constitution.  But  by  far  the  greatest 
part  was  caused  by  the  construction  of  new  buildings  for 
state  institutions,  on  which  expenditures  began  in  1848, 
and  which  had  swelled  to  alarming  proportions  by  the  end 
of  a  decade. 

A  new  state  house  had  been  projected  in  1838  and  the 
preliminary  work  begun,  but  after  a  couple  of  years  had 
been  given  over  in  view  of  the  hard  times.  It  was  now 
revived  on  a  larger  scale,  and  appropriations  were  made  for 
this  purpose  continuously  from  1848  to  1861,58  whicli  far 
exceeded  the  original  estimates.  In  1852  new  lunatic 
asylums  at  Cleveland  and  Dayton  were  authorized,59  but 
it  was  stipulated  in  the  law  authorizing  them  that  "the 
entire  cost  to  the  state,  of  each  of  said  asylums,  shall  not 
exceed  in  the  aggregate,  when  perfectly  completed",  $70,- 
000.  The  amount  of  money  originally  appropriated  was 
$140,000,  but  the  trustees  contracted  for  the  erection  of 
buildings  costing  far  more,  and  persuaded  the  legislature 
in  1854  to  grant  an  additional  $50,000.  By  the  end  of 

°*This  was  the  surplus  revenue  fund  distributed  among  the  states  by 
the  federal  government  in  1837. 

"Act  of  May  I,  1852.  In  his  report  of  Feb.  12,  1853,  the  auditor  sug- 
gested that  this  transfer  be  made  permanent ;  i.e.  that  no  attempt  be  made 
to  restore  the  money  to  the  surplus  revenue  fund. 

"See  column  8a  in  Table  of  Expenditures,  in  Appendix. 

"Act  of  April  30,  1852. 


87]  RECEIPTS  AND  EXPENDITURES  87 

1855,  there  had  been  drawn  from  the  treasury  f  198,989, 
and  the  buildings  were  still  uncompleted.00  In  1854  the 
legislature  began  the  improvement  of  practically  all  the 
other  state  institutions,  and  the  erection  of  new  buildings, 
for  the  penitentiary,  the  blind,  and  the  deaf  and  dumb 
asylums.  The  expenditure  in  many  cases  was  prodigal.61 
Charges  of  graft  and  fraud  were  freely  made  in  connection 
with  the  letting  of  contracts  and  the  work  of  construction 
and  repair,  and  apparently  not  without  warrant.  The 
debts  for  these  buildings  far  outran  the  appropriations, 
though  these  were  increased  greatly  beyond  the  original 
estimates.  Finally,  in  1856,  the  legislature  was  forced  to 
meet  the  accumulated  liabilities  by  a  special  appropriation 
of  |493,138,  which  cleaned  up  the  bills  temporarily.  The 
completion  of  the  buildings,  however,  called  for  still  further 
appropriations  even  after  this,  which  continued  until  1860. 
The  responsibility  for  this  extravagance  must  be  divided 
between  the  legislature  and  the  administrative  officers 
entrusted  with  the  erection  of  the  buildings. 

More  careful  provision  was  made  in  1853  "for  the 
publication  of  an  accurate  and  detailed  statement  of  the 
receipts  and  expenditures  of  the  public  revenues."62  It 
provided  that  every  officer  of  the  state  who  was  charged 
with  the  receipt  and  disbursement  of  public  money,  should 
make  a  detailed  annual  report.  The  auditor  was  required 
to  classify  and  arrange  these  under  proper  heads,  "so  as 
to  present  in  detail  an  accurate  account"  of  the  finances. 
The  only  discernible  effect  of  this  was  to  introduce  a  new 
method  of  keeping  accounts  in  the  auditor's  office  and  to 
render  his  reports  comparable  with  earlier  ones  with  diffi- 
culty. Itemized  expenditures  are  given  under  the  heading 
"net  amount  drawn  on  the  treasury",  which  does  not 
correspond  with  the  item  called  "audited  bills  redeemed" 
of  previous  reports,63  for  it  includes  bills  outstanding  and 

"Aud.  rep.,  1855. 

"See  columns  5  and  53  in  Table  of  Expenditures,  in  Appendix. 

"Act  of  March  14,  1853. 

"See  Table  of  General  Revenue  and  Expense  Account  in  Appendix. 


88  FINANCIAL  HISTORY  OP  OHIO  [88 

not  yet  presented  for  redemption,  and  is  therefore  larger. 
Nor  does  it  agree  with  the  item  called  "bills  drawn  on  the 
treasury'',  i.  e.  appropriations,  for  it  does  not  include  un- 
expended balances  of  appropriations,  and  is  therefore 
smaller  than  this.  The  table,  however,  has  been  carried 
on  as  before. 

It  seemed  as  though  the  worst  financial  difficulties  of 
the  state  had  now  been  weathered.  Acts  were  passed  in 
1856  providing  for  the  appointment  of  investigating  com- 
mittees to  inquire  into  the  expenditure  of  public  moneys, 
to  punish  embezzlement,  and  to  define  more  carefully  the 
duties  of  the  auditor  and  treasurer.  Suddenly  a  new 
financial  complication  arose.  On  June  10, 1857,  William  H. 
Gibson,  the  treasurer  of  state,  announced  a  deficit  in  his 
office,  occasioned,  as  he  alleged,  by  the  defalcation  of 
John  G.  Breslin,  his  immediate  predecessor.  Three  days 
later  he  resigned  his  office.  On  that  date  he  stood  charged 
on  the  books  of  the  treasury  with  an  aggregate  balance 
of  $776,141.  Instead  of  this  sum  only  $99,055  was  actually 
found  in  the  treasury,  of  which  but  $34,940  was  available 
and  only  $170  in  cash.64  The  actual  deficit  proved  to  be 
$744,084.  Most  of  this— $411,312— belonged  to  the  general 
revenue  fund  and  reduced  by  so  much  the  amount  imme- 
diately available  for  state  purposes;  $337,324  belonged  to 
the  sinking  fund,  and  was  designed  for  the  payment  of  the 
interest  on  the  state  debt,  due  July  I.65  Immediate  steps 
were  taken  to  meet  this  crisis  and  an  arrangement  was 
made  with  the  Ohio  Life  Insurance  and  Trust  Company 
under  which  that  institution  advanced  to  the  state  in  New 
York  City,  on  July  1,  the  sum  of  $150,000,  which,  together 
with  what  had  been  previously  provided,  paid  the  interest 
on  the  debt,  and  fully  protected  the  credit  of  the  state.66 

To  meet  the  outstanding  warrants  of  the  auditor  and 

"Spec.  Rep.  on  the  Condition  of  the  Treasury,  Nov.  15,  1857. 

"Rep.  of  Board  of  Sinking  Fund  Commissioners,  Feb.  15,  1859. 

**Gov.  Mess.  Exec.  Doc.,  1857,  Pt.  I.,  p.  357.  The  Ohio  Life  Insurance 
and  Trust  Co.  was  wrecked  a  few  weeks  later  by  the  defalcation  of  its 
cashier. 


89]  RECEIPTS  AND  EXPENDITURES  89 

provide  for  paying  those  which  would  necessarily  have  to 
be  drawn  before  other  means  could  be  provided  for  their 
payment,  an  arrangement  was  made  with  the  State  Bank 
and  branches  by  which  these  institutions  agreed  to  pay 
direct  to  parties  holding  auditor's  warrants  the  amounts 
due  them,  and  await  reimbursement  from  the  incoming 
revenues.67  Immediate  necessities  were  thus  tided  over 
and  the  state  was  enabled  to  meet  all  its  obligations 
punctually.  The  financial  condition  of  the  state  treasury 
had  apparently  never  been  stronger  than  it  was  in  1855, 
but  the  double  coincidence  of  extravagance  and  corruption 
had  proved  too  great  a  strain  for  even  an  apparently  full 
treasury.  As  Governor  Chase  said:68  "If  there  had  been 
no  defalcation,  the  means  in  the  treasury  would  have  been 
ample  to  pay  the  debts  of  1855  and  meet  all  other 
demands.  ...  If  there  had  been  no  debts,  the  defalca- 
tion would  not  have  sensibly  embarrassed  the  operations 
of  the  treasury".  The  debts  thus  alluded  to  amounted,  at 
the  end  of  1857,  to  f  639,666.  These  had  been  contracted  as 
to  the  greater  portion  without  warrant  of  law ;  but  as  they 
originated  in  supplies  and  labor  furnished  to  the  state  and 
its  institutions,  for  the  most  part  in  good  faith,  payment 
could  not  properly  be  denied  the  creditors.69 

On  the  convening  of  the  legislature  at  the  opening  of 
1858,  the  governor  clearly  stated  the  situation  to  the 
legislature  :70 

it  will  now  be  necessary  to  reduce  the  appropriations  of  the  current  year 
by  an  equal  amount,  or  to  authorize  a  temporary  loan  to  make  good  the 
deficiency,  and  to  increase  the  taxes  of  the  coming  year  by  the  small 
addition  needed  to  discharge  it. 

The  first  was  manifestly  impossible,  though  a  slight  reduc- 
tion of  about  |35,000  below  the  previous  year  was  made 
in  appropriations.  Accordingly  a  temporary  loan  of  $700,- 
000  at  6  per  cent,  was  made,  to  be  paid  before  March  1, 

"Ibid.,  p.  362. 

"Gov.  Mess.  Exec.  Doc.,  1857,  I,  367. 

mlbid,  p.  365. 

TOGov.  Mess,  of  Jan.  4,  1858. 


90  FINANCIAL  HISTORY  OF  OHIO  [90 

1861.71  The  act  also  levied  a  tax  of  7-20  of  a  mill  for 
the  years  1858,  1859,  and  1860,  for  the  payment  of  the 
loan,  "the  proceeds  of  which  tax  is  hereby  irrevocably 
pledged  to  the  purpose  aforesaid".  A  commission  was  also 
appointed  by  another  act  on  the  same  day,  to  examine  into 
the  condition  of  the  treasury,  and  the  causes  of  the  defalca- 
tion. The  following  year  the  slate  was  wiped  clean  and  a 
number  of  unusual  charges  were  met  by  the  general  revenue 
fund.  These  consisted  of  various  old  and  unavailable 
claims,  which  had  been  accumulating  for  years,  and 
counterfeit  notes,  together  amounting  to  $64,853;  extra- 
ordinary expenditures  for  canals,  including  the  purchase  of 
the  Lewistown  reservoir  and  the  National  Road;  and  the 
expenses  of  the  treasury  investigating  committee.72  They 
aggregated  about  $175,000,  and  reduced  the  balance  in  the 
treasury  to  $4,569,  but  at  least  they  left  the  docket  clear. 

It  is  indispensable  to  every  sound  financial  system,  [wrote  Governor 
Chase]  that  the  appropriations  be  limited  by  revenues,  and  expenditures 
by  appropriations.  The  derangements  which  have  sometimes  embarrassed 
our  finances  may  be  traced,  almost  invariably,  in  the  absence  of  crime,  to 
a  disregard  of  this  salutary  principle. 

In  order  to  meet  the  existing  deficiency  the  auditor 
had  urged  strongly  the  celling  of  the  state's  railroad  and 
turnpike  stock,  pointing  out  that  it  had  already  depre- 
ciated considerably,  and  that  this  should  be  done  rather 
than  increase  the  taxes.73  The  governor,  however,  though 
he  had  expressed  himself  previously  in  favor  of  their  sale, 
thought  the  time  an  ill-advised  one,  and  that  the  proceeds 
of  the  sales  ought  not  "to  be  applied  to  any  other  purpose 
than  the  reduction  of  the  public  debt".74  This  was  the 
beginning  of  an  agitation  in  favor  of  the  sale,  not  only  of 
the  stock  owned  by  the  state,  but  also  of  the  public  works 
themselves,  and  finally  resulted  in  the  lease  of  the  canals 
in  1861  and  the  sale  of  the  stock  a  few  years  later,  in  1865 
and  1866. 

"Act  of  April  12,  1858. 

"ist  an.  rep,  of  Comptroller,  Nov.  16,  1859.    Exec.  Doc.,  1859,  I,  455. 

"Aud.  rep.,   1857. 

"Gov.  Mess.,  1857.    Exec.  Doc.  I,  368. 


91]  RECEIPTS  AND  EXPENDITURES  91 


CIVIL  WAR  PERIOD,  1860-1865. 

At  the  outbreak  of  the  Civil  War  the  finances  of  the 
state  were  on  a  firm  basis;  they  "have  not,  for  several 
years,  been  in  as  good  a  condition  as  they  are  at  this  time", 
wrote  the  auditor.75  The  revenue  system  was  now  in  good 
working  order,  the  old  debts  had  been  cleared  up,  expendi- 
tures on  the  public  buildings  and  institutions  had  come  to 
an  end,  and  the  recent  experiences  of  the  state  had  resulted 
in  a  thorough  political  house  cleaning,  so  that  the  state 
government  was  practically  free  from  extravagance  and 
corruption.  Under  these  circumstances  the  burdens  im- 
posed by  the  war  rested  more  lightly  upon  the  people  of 
Ohio  than  they  did  in  most  states.  The  most  serious  loss 
involved  was  occasioned  by  the  drain  of  men  from  farm 
and  city;  between  1861  and  1865  Ohio  sent  310,654  of  her 
sons  into  the  Union  armies.  The  war  expenses  of  the  state 
government  during  these  years  was  as  follows  :76 

YEAR  EXPENSES.  RELIEF  FUND.  TOTAL. 

1861 $1,458,482  none  $  1,458,482 

1862 1,386,614  $   533,179  1,919,793 

1863 420,260  935,703  1,355,963 

1864 878,301  2,012,050  2,800,351 

1865 597,717  2,137,933  2,735,650 


$4,741,374  $5,618,865  $10,360,239 

Claims  allowed  and  not  yet  paid,  but  for  which  the  state  is  liable         50,000 


$10,410,239 

Of  this  state  expenditure,  |1,059,079  was  raised  by 
means  of  loans  still  outstanding  at  the  end  of  the  war ;  and 
$1,851,899  was  refunded  by  the  federal  government  on 
account  of  the  direct  tax  levied  on  the  states,  leaving  a 

"Aud.  rep.,  1861.  Exec.  Doc.,  II,  30. 

"Rep.  Adjutant  General.  Exec.  Doc.,  1866,  I,  29.    In  addition  to  these 


92  FINANCIAL  HISTORY  OF  OHIO  [92 

balance  of  about  $7,500,000  to  be  raised  by  taxation.77  In 
spite  of  this  extraordinary  drain  upon  her  resources,  Ohio 
yet  succeeded  in  reducing  the  state  debt  $1,374,921,  and 
found  it  necessary  to  raise  the  rate  of  taxation  by  only 
1.35  mills.78  The  explanation  of  this  seeming  miracle  is 
to  be  found  in  the  increase  in  taxable  property  returned 
for  taxation,  and  the  promptness  with  which  taxes  were 
paid  under  the  stimulus  of  patriotism,  the  delinquencies 
falling  in  1861  to  less  than  1  per  cent,  of  the  total.79  At 
the  same  time  economies  were  introduced  in  expenditures 
for  ordinary  purposes  and  these  were  maintained  nearly 
on  a  stationary  level  in  spite  of  rising  prices.  Not  until 
the  last  year  of  the  war,  1865,  was  there  any  marked  in- 
crease in  expenditures. 

But  even  more  striking  than  the  economies  in  state 
administration  were  those  effected  by  the  local  govern- 
ments. Of  the  local  revenues,  the  governor  wrote  in  1861,80 

expenditures  on  the  part  of  the  state  government  a  much  larger  amount 
was  raised  for  local  bounties  to  enlisted  men. 

AMOUNT    OF  TOTAL  AMOUNT 

YEAR.                       NUMBER  MEN.  BOUNTY.  OF  BOUNTIES. 

1862 42,031  $25  $1,050,775 

1863 16,472  100  1,647,200 

1864 96,457  400  38,582,800 

1865 22,212  50O  II,IO6,OOO 


$52,386,775 

Veterans 20,708  100  2,070,800 


54,457,575 

Of  which  there  was  paid  by  municipal  corporations. $14,000,000 
By  individual  subscription 40,457,575 


$54,457,575 

"In  the  auditor's  report  for  1865  there  is  a  mistake  in  subtraction, 
the  latter  figure  being  given  as  $8,449,261.  Exec.  Doc.,  1865,  I,  329. 

'*The  rate  of  state  taxation  was  as  follows :  1860,  3.95  mills ;  1861, 
4.55  mills;  1862,  4.65  mills;  1863,  5.05  mills;  1864,  5.30  mills;  1865,  5.30 
mills.  , 

"See  chapter  V,  on  the  General   Property  tax. 

*°Gov.  Mess.  Exec.  Doc.,  1861,  I,  484. 


93]  RECEIPTS  AND  EXPENDITURES  93 

it  is  believed  that  at  least  33  per  cent,  may,  without  serious  and  but 
temporary  detriment  to  the  people  of  the  state,  be  withheld  from  the 
several  special  purposes  and  made  applicable  to  the  general  treasury. 

So  energetically  was  this  principle  carried  out  during  the 
first  two  years  of  the  war  that,  in  spite  of  heavy  war  ex- 
penditures, there  was  a  decrease  of  over  $1,000,000  in  the 
aggregate  taxes  for  all  purposes  within  the  state.  The 
following  table  makes  this  point  clear  :81 

1861.  1862. 

State  taxes  for  ordinary  purposes $  3,744,454  $3,285,609 

State  taxes  for  war  purposes 311,925  843,863 

County  taxes 3,222,373  2,783,735 

City,  town,  and  special  taxes 3,972,376  2,849,301 


Aggregate  $11,071,128  $9,762,508 

The  laws  of  1860  did  not  contain  the  word  "militia" 
in  the  index,  and  the  state  expenditures  for  militia  and 
military  affairs  amounted  to  only  $6,656,  which  was  double 
that  of  the  previous  year.  With  the  outbreak  of  war,  how- 
ever, Ohio  promptly  appropriated  the  money  necessary  to 
arm  and  equip  her  soldiers.  The  act  of  April  18,  1861, 
provided  for  the  rapid  organization  of  the  militia,  appro- 
priated $450,000  for  arms  and  equipment,  and  $500,000 
for  the  support  of  the  federal  government,  to  be  spent 
under  the  direction  of  the  governor;  a  contingent  fund  of 
$50,000  was  also  placed  at  the  disposal  of  the  governor, 
and  a  loan  of  $750,000  was  authorized.82  The  following 
years  still  greater  expenditures  were  authorized.83  As 
Ohio's  southern  boundary  was  exposed  to  invasion,  the 
legislature  showed  itself  very  fearful  of  attack  from  that 
source;  by  act  of  April  11,  1863,  a  loan  of  $500,000  was 
authorized  in  case  of  invasion,  which,  however,  was  not 
made.  The  same  year  Morgan's  raid  (June  27- July  26) 
showed  the  danger  to  be  a  real  one,  and  during  the  next 
session  $35,000  was  appropriated  to  repel  invasion  and 

*'Rep.  Com'r  of  Stat.  Exec.  Doc.,  1862,  I,  462. 
"O.  L.,  1861,  p.  89. 

"Acts  of  May  i,  1862;  Jan.  20,  1863;  April  13,  1863;  March  30,  1864; 
April  13,  1865. 


94  FINANCIAL  HISTORY  OF  OHIO  [94 

suppress  insurrection,  while  a  loan  of  $400,000  for  the 
same  purpose  was  authorized.84  This  bore  6  per  cent, 
interest  and  the  bonds  were  exempt  from  state  taxation; 
it  was  sold  to  the  citizens  of  Ohio  and  yielded  a  premium 
of  $502.85  The  following  year  an  appropriation  of  f  500,000 
was  made,  to  be  used  if  necessary  to  repel  invasion  or  sup- 
press insurrection.80 

The  war  governor  of  Ohio  was  David  Tod,  but  on 
January  11,  1864,  John  Brough,  who  had  formerly  been 
one  of  Ohio's  most  able  auditors,  was  inaugurated.  In 
his  last  official  message,  Governor  Tod  urged  the  abolition 
of  the  office  of  comptroller,  as  useless  and  unnecessary — a 
recommendation  also  made  by  the  auditor — and  also  an 
increase  in  the  salaries  of  state  officers  by  50  per  cent.87 
The  over-issue  of  paper  money  by  the  federal  government 
had  led  to  a  rise  in  prices,  but  the  pay  of  state  officials 
had  remained  constant  at  the  point  at  which  they  had  been 
fixed  years  before.  Two  years  later,  when  the  war  wras 
over,  the  legislature  followed  this  advice,  taking  care  at 
the  same  time  to  raise  their  own  pay  to  $5.00  a  day  and 
$3.00  mileage  for  every  twenty-five  miles  traveled ;  the 
salary  of  the  governor  was  fixed  at  $4000.88 

Partly  as  a  result  of  extraordinary  expenditures  occa- 
sioned directly  or  indirectly  by  the  war,  partly  as  a  result 
of  the  higher  prices,  and  partly  as  a  result  of  normal 
growth,  and  possibly  of  growing  extravagance  engendered 
by  the  paper  money  regime,  the  disbursements  of  the  state 
government  were  steadily  mounting  upwards.  The  gross 
expenditures  of  the  state  grew  from  $3,683,000  in  1800  to 
$12,435,000  in  1865,  while  the  net  expenditures  of  the 
general  revenue  fund  increased  from  about  $800,000  to 
$2,275,000  in  :he  same  period.  The  year  1865  was,  how- 
ever, an  abnormal  vear,  being  more  than  double  the 


"Act  of  March  30,  1864.  O.  L.,  p.  81. 

"Rep.  Com'r  of  Skg.  Fd.  Exec.  Doc.,  1864,  I,  205. 

"Act  of  April  13,  1865.  O.  L.,  p.  164. 

"Gov.  Mess.,  Jan.  4,  1864.  Exec.  Doc.,  1863,  I,  3. 

"Act  of  April  2,  1866.  O.  L.,  p.  65. 


95]  RECEIPTS  AND  EXPENDITURES  95 

previous  year,89  and  the  largest  in  the  history  of  the  state 
down  to  the  present  time.  Part  of  this  increase  was  occa- 
sioned by  the  payment  of  the  direct  tax  of  $766,897  to  the 
federal  government,  while  the  benevolent  institutions 
called  for  $225,000  more  than  the  previous  year,  and  print- 
ing, binding,  and  stationery  showed  an  excess  of  $110,000. 
In  even  greater  degree  the  local  expenditures  and  taxes 
grew.  The  state  budget  became  permanently  larger  from 
this  time  on,  and,  though  economies  along  some  lines  were 
effected  and  the  swollen  items  of  1865  were  cut  down,  it 
was  never  again  brought  back  to  the  ante-bellum  figures. 

DEFICITS  AND  TRANSFERS. 

Upon  the  cessation  of  war  the  state  tax  rate  was 
restored  to  the  old  figure  of  1859,  and  an  effort  was  made 
to  cut  down  expenditures.  The  act  of  April  5,  1866,  fixed 
the  rates  of  taxation  for  state  purposes  as  follows:  state 
government,  including  benevolent  institutions,  1  mill; 
sinking  fund  1.2  mills ;  common  schools,  1.3  mills.  The  low- 
ness  of  these  rates  led  to  the  boast  that  Ohio  had  the 
cheape.st  state  government,  in  proportion  to  population, 
that  could  be  found.90  The  whole  amount  of  salaries  paid 
to  state  officers  in  1866  was  only  $21,207.  This  was  soon 
altered  by  an  act  of  this  same  year  providing  for  a  gen- 
eral salary  increase. 

The  budget  of  1867  and  1868  accordingly  saw  a  great 
increase  in  the  salaries  of  administrative  and  judicial 
officers  and  in  the  pay  of  members  of  the  general  assembly. 
The  cost  of  maintenance  of  the  charitable,  correctional,  and 
penal  institutions  also  showed  a  rapid  and  continuous 
expansion,  from  $375,000  in  1864  to  $645,000  in  1865, 
$780,000  in  1866,  and  $935,000  in  1867.  In  the  following 
year  it  passed  the  million  dollar  mark,  and  only  once 
since  has  fallen  below  that  figure.  This  growth  of  public 
expenditures  called  forth  a  protest  in  1868  from  the 

"Gov.  Mess.,  Exec.  Doc.,  1865,  I,  205. 

"Rep.  Com'r  of  Stat.  Exec.  Doc.,  1866,  I,  667. 


96  FINANCIAL  HISTOKY  OF  OHIO  [96 

auditor;91  he  thought  $500,000  a  year  could  be  .sa-,red,  "and 
the  public  service  be  better  performed  than  under  the 
present  wasteful  system  of  management".  To  carry  out 
this  policy  of  retrenchment  he  urged  shortening  the  term 
of  the  legislative  sessions,  docking  the  pay  of  absentees, 
forbidding  extra  compensation,  etc.  Not  all  of  the  expendi- 
tures, however,  were  caused  by  legislative  extravagance, 
for  the  decade  following  the  war  saw  the  application  in 
Ohio  of  a  vigorous  policy  of  debt  payment.  In  1867  the 
claims  due  the  state  from  the  federal  government  and  the 
balances  of  various  funds  then  in  the  treasury  were  trans- 
ferred to  the  sinking  fund  and  used  to  pay  the  debt.92 

By  1867  the  extraordinary  expenditures  belonging  to 
a  state  of  war  had  ceased,  thereby  making  an  annual  saving 
to  the  people  of  Ohio  of  about  $3,000,000.93  Tho  state  tax 
was  reduced  to  the  same  point  as  before  the  war,  and  a 
decrease  in  expenditures  might  have  been  anticipated. 
Such  was  far  from  being  the  case,  however.  Rising  prices 
caused  by  depreciated  paper  money  induced  legislative  and 
administrative  extravagance  and  also  necessitated  higher 
taxes,  while  the  growth  of  population  and  the  rapid  in- 
crease of  cities  and  towns  called  for  larger  expenditures  to 
satisfy  legitimate  needs.  A  comparison  of  the  various 
rates  of  taxation  for  state  and  local  purposes  makes  it 
evident  that  the  real  growth  during  this  period  was  in  the 
local  governments  rather  than  in  the  state.  This  is  clearly 
shown  in  the  following  table:94 

PURPOSES.  1859.  l866.  1867. 

State  tax 3.5  3.5  3.5 

Aggregate  local  taxes 7.7  10.0  12.5 

Other  special  taxes 1.3  1.4  1.4 

Aggregate  12.5  14.9  17.4 

During  all  this  period  the  receipts  from  taxation  were 
steadily  increasing,  although  the  rate  for  state  purposes 

wAud.  rep.,  Dec.  12,  1868.  Exec.  Doc.,  I,  94. 

MGov.  Mess.,  Jan.  6,  1868.  Exec.  Doc.,  1867,  I,  148. 

"Ibid.,  p.  147. 

MRep.  Com'r  of  Stat.  Exec.  Doc.,  1867,  I,  948. 


97]  RECEIPTS  AND  EXPENDITURES  97 

remained  unchanged.  In  1867  the  valuation  of  the  taxable 
property  in  the  state  increased  $32,545,858  over  that  of  the 
previous  year;  this  the  governor  thought  was  due  to  the 
increased  care  and  accuracy  in  the  administration  of  the 
tax  laws,  and  the  growing  familiarity  of  local  boards  of 
equalization  with  their  duties.95  More  important,  however, 
was  probably  the  general  rise  of  prices,  which  by  this  time 
had  affected  real  estate  and  property  values. 

But  in  spite  of  the  growth  of  revenues,  expenditures 
were  growing  still  more  rapidly.  In  1868,  as  a  result  of 
the  increase  of  legislative  appropriations  $90,000  in  excess 
of  the  estimates,  and  other  causes,  a  deficit  appeared  in  the 
state  finances.  To  avoid  borrowing  or  raising  the  tax  rate 
the  auditor  suggested  a  transfer  of  $200,000  from  the  sink- 
ing fund.96  In  spite  of  its  unconstitutionally  this  advice 
was  followed,  and  $175,000  was  transferred  from  the  sink- 
ing to  the  general  revenue  fund,  on  condition  that  it  be 
repaid  by  January  1,  1871. 97  This  method  of  covering 
deficiencies  and  yet  permitting  extravagant  appropriations 
was  so  easy,  that  it  was  resorted  to  again  in  1869.  This 
time  there  was  transferred  from  the  sinking  fund  $150,000, 
from  the  school  fund  $71,000,  and  from  the  canal  fund 
$25,000,  or  a  total  of  $246,000.98  In  spite  of  these  tem- 
porary loans,  there  were  on  November  15,  1869,  outstand- 
ing appropriations  against  the  general  revenue  fund 
amounting  to  $1,303,407,  for  which  there  were  no  monies 
available.99  For  the  coming  year  the  auditor  estimated 
that  there  would  be,  on  the  basis  of  existing  revenues  and 
expenditures,  a  deficit  of  $510,000,  to  meet  which  he  urged 
an  additional  tax  levy  of  .5  mill,  and  in  case  the  taxes 
could  not  be  collected  in  time  then  a  temporary  loan  of 
$300,000  would  be  necessary. 

"Gov.  Mess.,  Jan.  6,  1868.  Exec.  Doc.,  1867,  I,  148. 

"Aud.  rep.  Exec.  Doc.,  1868,  I,  85. 

"Act  of  May,  1868.  For  a  full  discussion  of  these  transfers  and  their 
legality,  see  The  History  of  the  State  Debt  of  Ohio,  in  Journal  of  Political 
Economy,  June,  1911,  p.  464. 

"Authorized  by  appropriation  act  of  May  5,  1869. 

"And.  rep.  Exec.  Doc.,  1869.  I,  373. 


98  FINANCIAL  HISTORY  OF  OHIO  [98 

The  embarrassment  of  this  fund  [he  wrote100]  has  been  produced 
by  the  last  two  sessions  of  the  General  Assembly,  by  the  addition  of 
eleven  new  judges  to  the  judicial  forces  of  the  state,  by  the  purchase  of 
lands,  and  establishing  thereon  a  Reform  School  for  Girls,  the  unusual 
expenses  of  traveling  committees  of  the  Legislature,  and  the  extra- 
ordinary appropriations  for  miscellaneous  purposes  made  at  the  last  two 

sessions  of  the  General  Assembly There  is  such  a  mania  for 

office,  for  squandering  the  public  moneys,  in  fat  jobs  to  favorite  con- 
tractors, and  improvident  purchase  of  property  from  favorites  at 
exhorbitant  prices,  that  without  some  such  restraints  as  are  here  indicated 
there  is  danger  of  great  public  demoralization;  of  oppressing  the  enter- 
prising and  industrial  classes  of  the  people,  and  driving  whole  communities 
into  bankruptcy. 

The  largest  item  in  the  increased  expenditures  was  for 
the  construction  and  support  of  the  benevolent  institutions 
of  the  state.  Ohio  was  at  this  time  entering  upon  the 
policy,  which  has  been  adopted  now  by  all  the  advanced 
states  of  caring  for  the  defective  and  dependent  classes  at 
state  expense,  instead  of  leaving  them  to  the  mercy  of  the 
local  governments.  In  carrying  out  this  policy  there  were 
built  during  this  period  state  asylums  for  the  deaf  and 
dumb,  for  the  blind,  and  for  imbecile  youth.  The  Northern 
Lunatic  Asylum  had  been  burned  and  was  rebuilt. 
Although  the  governor  urged  that  the  state  alsc  undertake 
the  complete  care  of  the  insane,101  this  reform  was  not 
effected  until  the  end  of  the  century,  and  the  insane  poor 
remained  in  county  almshouses.  Indeed  the  reforms  under- 
taken threatened  to  equal  the  aggregate  revenues.  "The 
people  of  Ohio  are  grievously  taxed",  wrote  the  auditor  in 
1871,102  and  in  the  following  year  he  pointed  out  that 

54  per  cent,  of  the  entire  receipts  of  the  state,  or  72  per  cent,  of  the 
amount  received  from  taxation,  was  disbursed  for  the  State  public  benevo- 
lent institutions.  .  .  .  More  than  98  per  cent,  of  the  entire  receipts 
from  taxes  into  the  revenue  fund  are  to  be  absorbed  by  state  charities.10* 

The  estimated  receipts  of  the  general  revenue  fund  for 
1872  were  $1,627,625,  and  the  estimated  disbursements  for 
the  benevolent  institutions  were  $1,600,000. 

™Ibid.,  pp.  373,  381. 

101Gov.  Mess.  Exec.  Doc.,  1872,  II,  572. 

imExec.  Doc.,  1871,  II,  200. 

103Aud.  rep.  Exec.  Doc.,  1872,  II,  325. 


99]  RECEIPTS  AND  EXPENDITURES  99 

Desirable  as  were  the  reforms  which  the  state  was 
carrying  out,  they  were  threatening  to  absorb  the  funds 
needed  to  defray  the  ordinary  expenses  of  government. 
The  general  revenue  fund  was  actually  overdrawn  during 
most  of  the  year  1872,  but  transfers  from  the  sinking  fund 
and  the  common  school  fund  were  authorized  by  the  gen- 
eral assembly  and  an  actual  deficit  was  thus  temporarily 
averted.104  By  the  end  of  the  fiscal  year,  however,  the  real 
deficit  of  the  general  revenue  fund  was  $170,867.105  To  meet 
the  growing  demands  upon  the  state  the  auditor  urged  that 
the  rate  of  taxation  for  this  purpose  be  increased  from 
1.1  mills  to  1.7  mills,  making  the  total  state  levy  3.5  mills. 
On  the  basis  of  existing  revenues  and  estimated  appropria- 
tions he  prophesied  a  deficit  for  the  next  year  of  $380,000. 

ENFORCED   ECONOMY. 

The  following  year  the  legislature  resolutely  attacked 
the  financial  situation.  They  reduced  expenditures  $427,- 
485  below  those  of  the  previous  year;  the  tax  levy  was  in- 
creased by  .6  mill,  in  accordance  with  the  auditor's  sugges- 
tion, while  a  windfall  of  $94,000  was  added  to  the  receipts 
through  the  payment  of  some  Avar  claims  by  the  federal 
government.100  At  the  same  time  an  effort  was  made  to 
separate  the  extraordinary  expenditures  occasioned  by  the 
building  of  benevolent  institutions  from  the  normal  ex- 
penses of  running  the  state  government,  by  the  creation  of 
a  separate  fund  for  the  former  purpose,  called  the  asylum 
fund.  This  was  established  by  assigning  to  it  70  per  cent, 
of  all  the  taxes  collected  for  the  general  revenue  fund.107 
The  latter  could  not  stand  this  drain,  however,  and  after 
transferring  $929,306  saw  its  own  balance  reduced  to  only 
$21,108.  The  following  year  $45,957  additional  was  trans- 
ferred, leaving  $17,264  still  owing  "to  be  transferred  when 

>04Act  of  April  27,  1872. 
'"And.  rep.,  ut  supra,  p.  325. 
1<wAud.  rep.  Exec.  Doc.,  1873,  I,  4. 
""Act  of  Jan.  14,  1873.    70  O.  L.,  p.  8. 


100  FINANCIAL  HISTORY  OF  OHIO  [100 

the  revenue  fund  is  in  a  condition  to  justify  the  same".108 
The  inability  to  complete  the  transfer  was  due  to  the 
lowering  of  the  tax  rate  by  .3  mill,  which  reduced  the 
state  taxes  below  what  it  was  estimated  they  would  have 
yielded  by  $474,000. 

Unfortunately  the  reduction  in  the  tax  rate  coincided 
with  a  decided  shrinkage  in  the  taxable  property  returned' 
for  taxation,  as  a  result  of  the  crisis  of  1873.  From  $1,648,- 
000  in  1873  the  receipts  from  the  general  property  tax  de- 
clined to  $925,000  in  1874,  $777,000  in  1875,  and  $627,000 
in  1876.  In  his  inaugural  address  to  the  legislature  in 
January,  1874,  and  again  in  his  annual  mesage  of  Decem- 
ber 1  of  the  same  year,  the  new  governor,  William  Allen, 
urged  economy,  especially  in  view  of  the  hard  times  pre- 
vailing.109 In  response  to  this  appeal  the  legislature  cut 
down  its  appropriations  for  1874  about  $90,000  below 
those  of  the  previous  year,  effecting  important  savings  in 
the  items  of  printing  and  distributing  the  laws  and 
journals,  and  militia.  On  the  other  hand,  the  disburse- 
ments for  the  pay  and  mileage  and  other  expenditures  of 
the  general  assembly  itself  were  larger  than  those  of  1873 
by  $50,000.  The  following  year,  1875,  they  cut  down  these 
expenditures  by  over  $90,000,  an  amount  which  repre- 
sented the  economies  of  this  year  over  the  previous  one. 

The  creation  of  the  asylum  fund  in  1873  had  mean- 
while tended  unnecessarily  to  confuse  and  embarrass  the 
finances.  After  this  act  there  were  four  distinct  funds 
or  purposes  for  which  taxes  were  levied;  these  were  the 
sinking  fund,  for  the  payment  of  the  state  debt;  the  gen- 
eral revenue  fund,  for  legislative,  executive,  and  judicial 
purposes;  the  asylum  fund,  for  the  support  and  main- 
tenance of  the  public  benevolent,  penal,  and  reformatory 
institutions;  and  the  common  school  fund,  in  respect  of 
which  the  state  acted  merely  as  the  agent,  returning  the 
proceeds  to  the  counties  in  proportion  to  the  enumeration 

10*Aud.  rep.,  Nov.  30,  1874.  Exec.  Doc.,  1874,  I,  37. 
lotE.rec.  Doc.,  1874,  I,  n. 


101] 


RECEIPTS  AND  EXPENDITURES 


101 


of  school  children.  no  For  each  of  these  purposes  a 
separate  levy  was  made  in  the  general  property  tax,  the 
proceeds  of  which  went  into  a  particular  fund,  from  which 
it  was  to  be  disbursed  for  that  purpose  only.  Each  fund 
had  its  own  sluice  through  which  flowed  a  part  of  the 
state  revenues,  distinct  and  separate  from  the  other  three. 
It  might  happen,  under  this  system,  and  frequently  did 
happen,  that  one  service  would  be  starved  for  lack  of  funds, 
while  another  would  have  a  surplus  on  hand.  Under  these 
circumstances  it  was  the  practice  of  the  legislature  to 
"borrow"  or  transfer  temporarily  the  money  from  one  fund 
to  another.  Each  fund  was  thus  endowed  with  a  sort  of 
fiscal  personality.  While  such  a  practice  might  seem  jus- 
tifiable as  a  mode  of  escape  from  the  rigidity  of  the  fund 
system  and  the  often  unwise  distribution  of  income  among 
them,  yet  it  could  result  only  in  confusion  if  not  in  down- 
right deception.  The  transfers  between  funds  during  the 
years  1872-75  is  concisely  set  forth  in  the  following  table, 
which  shows  the  amounts  owing  at  the  end  of  each  year: 


TRANSFERS11! 

Year  ending  Nov.  15 

1872 

1873 

1874 

1875 

From  sinking  to  general  revenue  fund 
From  school  to  general  revenue  fund 
From  sinking  to  asvlum  fund  

$  100,000 
50,000 

$  130,000 
80,000 
450,000 
21,000 

$  130,000 

450,000 
21,000 

$  450,000 

From  school  to  asylum  fund  

Total  

150,000!   68i,ooo|   601,000 

450,000 

As  a  result  of  these  transfers  from  the  sinking  fund 
to  the  asylum  fund,  and  the  failure  of  the  latter  to  repay 
it,  the  commissioners  of  the  sinking  fund  found  themselves 
unable  to  redeem  the  public  debt  that  fell  due  on  January  1, 
1876.  The  depleted  condition  of  the  sinking  fund  was  made 
worse  by  an  ill-advised  reduction  in  the  tax  levy  for  this 

""After  referring  to  this  system  the  auditor  concluded,  "I  know  of 
no  simpler  or  better  devised  plan  in  force  for  the  management  of  the 
finances  of  any  of  our  sister  states".  Aud.  rep.  Exec.  Doc.,  1873,  I,  4. 

'"Acts  of  1872,  May  5,  1873;  March  30,  1875.  O.  L.  vol.  69,  p.  136; 
vol.  70,  p.  271 ;  vol.  72,  p.  124. 


102  FINANCIAL  HISTORY  OF  OHIO  [102 

purpose  in  1874  by  .3  mills,  which  reduced  the  revenue  by 
some  $474,000.112  During  the  year  1875  the  general  assem- 
bly divided  the  sum  still  due  the  sinking  fund  and  assigned 
$70,000  to  the  general  revenue  fund  and  $380,000  to  the 
asylum  fund,  at  the  same  time  directing  that  "at  least 
$200,000  "should  be  retransferred  from  the  latter  to  the 
sinking  fund  before  January  ],  1876."113  As  there  was  an 
estimated  deficit  of  $280,000  for  the  asylum  fund  itself 
during  this  year,114  such  repayment  was  manifestly  im- 
possible, and  as  a  consequence  there  was  just  so  much  less 
to  apply  to  the  liquidation  of  the  debt  from  the  sums  that 
had  been  definitely  collected  for  this  purpose. 

This  incident  illustrates  fairly  the  improvident 
financiering  of  the  legislature,  and  their  exasperating 
method  of  shouldering  the  responsibility  off  on  to  the 
auditor  by  directing  him  to  perform  the  manifestly  im- 
possible. The  finances  of  these  four  years  were  greatly  con- 
fused by  the  transfers  and  standing  credits  of  one  fund  to 
another;  not  until  1876  were  they  straightened  out  again. 
No  effort  was  made  to  repay  the  "borrowed"  sums  to  the 
sinking  fund,  as  no  debt  became  due  until  1881.  But  in 
1879  the  asylum  fund  was  merged  in  the  general  revenue 
fund;115  practically  the  existence  of  this  fund  had  tended 
to  multiply  accounts  and  calculations  unnecessarily.116 

In  his  inaugural  message  of  January  3,  1876,  the  gov- 
ernor had  thought  it  necessary  to  admonish  the  general 
assembly  on  the  subject  of  economy. 

It  may  be  well  for  you  to  consider  [he  wrote1"]  whether  the  public 
interests  will  not  be  best  subserved  by  a  .  .  .  .  inquiry  for  means  to 
reduce  the  expenses  of  the  state  and  local  governments,  and  relieve  the 
people  from  as  much  of  the  burden  of  taxation  that  is  now  weighing 
them  down  as  possible,  rather  than  by  excessive  legislation  with  which 
former  general  assemblies  have  bewildered  the  people. 

mAud.  rep.  Exec.  Doc.,  1874,  I,  60. 
"Act  of  March  30,  1875,  Sec.  4.  O.  L.,  p.  124. 
"Aud.  rep.  Exec.  Doc.,  1875,  II,  373. 
•      "Act  of  March  26,  1879. 

"*Aud.  rep.  Exec.  Doc.,  1876,  I,  7. 
™Exec.  Doc.,  1875,  I,  3. 


103]  RECEIPTS  AND  EXPENDITURES  103 

The  revenues  were  declining  during  these  years  as  a  result 
of  the  depression  following  the  crisis  of  1873,  and  the 
general  assembly  which  was  in  session  during  1876  and 
1877  was  economical  in  its  appropriations.  An  increase  in 
the  item  of  salaries  of  administrative  officers  was  offset 
by  a  decrease  in  the  state  printing  bills;  an  interesting 
item  in  1876  was  $35,000  for  the  centennial  celebration. 

INCREASED  APPROPRIATIONS  AND  INSUFFICIENT  REVENUE. 

The  year  1878  saw  a  revival  of  industry,  which  was 
reflected  in  a  large  increase  in  the  revenues  from  taxation. 
This  increment  was  promptly  absorbed  by  greatly  enlarged 
appropriations,  amounting  to  60  per  cent,  more  than  those 
of  the  previous  year:  the  general  assembly  (for  extra- 
ordinary expenses),  printing,  the  public  works,  and  the 
militia  all  shared  in  the  distribution.  Not  merely  was  the 
surplus  spent,  but  advance  drafts  to  the  amount  of  $200,- 
000  were  drawn  on  the  county  treasurers  for  the  December 
taxes,  which  properly  belonged  in  the  next  year's  revenue 
account.  Consequently  instead  of  a  nominal  balance  of 
$119,184  in  the  treasury,  as  given  by  the  auditor,  there 
was  an  actual  deficit  of  $80,816.118  There  were  numerous 
occasions  in  Ohio  finance  when  this  same  practice  was 
repeated,  but  owing  to  the  system  of  cash  accounting,  by 
which  only  the  actual  receipts  and  disbursements  were 
stated  in  the  annual  balance  sheet,  these  real  deficits  do 
not  appear  in  the  auditor's  reports  or  in  my  table  of  the 
general  revenue  fund  (Table  I).  The  method  of  account- 
ing on  the  basis  of  accrued  receipts  and  liabilities  would  of 
course  prevent  the  concealment  of  such  practices  and 
reveal  more  truly  the  actual  state  of  the  treasury. 

In  1879  the  asylum  fund  was  again  consolidated  with 
the  general  revenue  fund,  which  makes  comparison  of  ex- 

"8Aud.  rep.,  Exec.  Doc.,  1878,  I,  4.  The  auditor's  reports,  which  in 
the  earlier  years  were  very  detailed  and  contained  much  valuable  informa- 
tion, are  now  restricted  to  the  bare  statistical  tables,  without  any  explana- 
tion or  criticism.  In  the  report  for  1877  comment  was  reduced  to  3 
pages,  in  1878  to  2,  and  in  1879  to  i  page. 


104  FINANCIAL   HISTORY  OP  OHIO  [104 

penditures  with  previous  years  a  little  difficult.  Expendi- 
tures for  the  charitable,  correctional,  and  penal  institutions 
of  the  state,  and  for  the  Soldiers'  and  Sailors'  Home  and 
maintenance,  amounted  to  about  $1,500,000  or  three-fifths 
of  the  whole.  The  item  of  public  works  showed  the  greatest 
growth  during  this  period.  These  had  been  leased  in  1861 
to  a  private  corporation,  which  threw  up  the  lease  in  1877 
as  they  were  not  proving  profitable.  Beginning  with  1878, 
consequently,  the  care  of  the  canals  added  on  the  average 
over  |200,000  yearly  to  the  budget. 

The  next  few  years  saw  only  a  normal  increase  in  ex- 
penditures, and  the  cash  balance  in  the  treasury  kept 
steadily  growing.  In  1884,  however,  the  general  assembly 
reduced  the  state  tax  for  general  revenue  purposes  by  one- 
tenth  of  a  mill,  resulting  in  a  loss  of  revenue  the  following 
year  of  |350,000.119  Unfortunately  for  the  revenues  the 
reduction  in  the  tax  rate  coincided  with  the  panic  of  1884, 
which  caused  a  decline  in  the  amount  of  personal  property 
returned  for  taxation  of  $32,293,135.  At  the  same  time  the 
expenditures  were  increased  over  $100,000,  so  that  the  casli 
balance  was  cut  down  from  $588,000  for  1884  to  $98,000 
in  1885.  During  the  session  of  1885  extravagant 
appropriations  absorbed  not  merely  this  balance  but 
created  liabilities  far  in  excess,  so  that  it  became  necessary 
for  the  state  to  make  advance  drafts  on  the  counties  to 
the  total  amount  of  $800,000. 

The  sixty-seventh  general  assembly,  which  convened 
for  a  two-year  term  in  January,  1886,  was  Kepublican.  It 
seemed  as  if  their  short  absence  from  power  had  simply 
whetted  their  appetites,  and  they  immediately  attacked  the 
public  revenues  like  ravenous  wolves.  The  appropriations 
for  1886  were  $324,119  in  excess  of  the  revenues,  and  the 
following  year,  in  spite  of  remonstrances  from  the  auditor, 
they  were  $363,071  in  excess,  or  a  total  in  two  years  of 
$687,191.  The  excessive  liabilities  created  by  the  previous 
general  assembly  had  necessitated  a  temporary  loan  of 

"'Gov.  Mess.  Exec.  Doc.,  1885,  I,  417. 


105]  RECEIPTS  AND  EXPENDITURES  105 

$500,000.120  Not  only  was  this  amount  wholly  absorbed, 
but  additional  deficiencies  were  created  which  had  to  be 
met  again  by  advance  drafts  on  the  counties  in  anticipation 
of  taxes.  The  counties  were  drawn  upon  as  early  as 
May  21,  1887,  on  account  of  the  June  collection  of  taxes 
which  were  ordinarily  no*  available  until  August.121  By 
the  fall  the  situation  was  so  serious  that  bills  and  accounts 
due  in  October  had  to  be  held  back  until  November  12,  the 
very  earliest  date  at  which  funds  could  be  raised  from  the 
counties  by  advance  drafts,  and  even  then  they  were  met 
out  of  funds  that  were  not  legally  collected  for  the  state. 
The  excess  of  actual  disbursements  over  receipts  during 
these  two  years  was  $607,065,  leaving  liabilities  of  over 
$80,000  still  unpaid. 

This  reckless  plan  of  living  beyond  their  income  and 
appropriating  money  not  on  hand  nor  available  for  state 
purposes  was  continued  by  the  next  general  assembly. 
Governor  Foraker  urged  that  this  be  avoided  by  increasing 
the  revenues;  or  if  this  was  not  done  that  the  levy  for 
the  sinking  fund  be  reduced  from  five-tenths  to  two-tenths 
of  a  mill  and  the  difference  be  added  to  the  general  revenue 
fund.  "This  will  almost,  if  not  quite,"  he  said,  "provide 
for  all  deficiencies".122  That  the  constitution  made  the 
payments  into  the  sinking  fund  mandatory  did  not  seem  to 
occur  to  him.  As  there  was  no  money  in  the  treasury,  the 
temporary  loan  due  on  July  1,  1887,  was  refunded  to  fall 
due  half  on  July  1,  1889,  and  half  on  July  1,  1890.123  The 
following  year  part  of  the  debt  due  on  July  1,  1888,  was 
refunded,  although  the  constitutional  requirement  of  the 
sinking  fund  was  thereby  disregarded. 

The  same  policy  of  deficit  financiering  was  pursued 
during  the  year  1888  also.  Deficiencies  amounting  to  over 
$220,000  were  created,  chiefly  on  account  of  the  construc- 


ia°Act  of  May  13,  1886.  O.  L.,  p.  154.    The  bonds  bore  3l/2  per  cent, 
interest,  and  were  made  payable  on  July  i,  1887. 
121Aud.  rep.,  Exec.  Doc.,  1887,  I,  292. 
122Gov.  Mess.  Exec.  Doc.,  1887,  I,  x. 
^Act  of  March  21,  1887.  O.  L.,  p.  167. 


106  FINANCIAL   HISTORY  OF  OHIO  [106 

tion  of  the  Soldiers'  and  Sailors'  Home  at  Sandusky,  and 
the  building  of  additional  cottages  at  the  Sailors'  Orphans' 
Home  at  Xenia.  Indeed  the  chronic  deficiencies  since 
1885  had  been  occasioned  by  the  construction  of  these 
institutions,  together  with  the  Toledo  Asylum  for  the  In- 
sane, the  Working  Home  for  the  Blind  at  Iberia,  and  the 
Intermediate  Penitentiary  at  Mansfield.  However  praise- 
worthy the  purposes  the  financial  policy  of  the  legislature 
must  still  be  condemned.  And  the  same  policy  was  pur- 
sued during  the  years  1889  and  1890;  in  the  former  year 
advance  drafts  were  drawn  on  counties  for  $100,000  in 
anticipation  of  the  next  year's  revenue,  and  in  the  latter 
to  the  amount  of  $185,000. 


ENLARGED     REVENUES     AND     INCREASED     EXPENDITURES     FOR 
PUBLIC  INSTITUTIONS. 

But  relief  was  now  at  hand.  The  public  institutions 
were  practically  completed  and  the  extraordinary  drain 
on  the  revenues  was  stopped.  And,  more  important  still, 
the  revenues  themselves  were  increased.  Instead  of  general 
stagnation,  it  was  now  a  period  of  general  prosperity.  The 
decline  in  the  value  of  taxable  property  on  the  duplicate 
was  stopped,  and  the  aggregate  of  property  returned  for 
taxation  increased  more  than  $84,000,000. 124  A  new  source 
of  state  revenue  was  also  tapped  in  the  liquor  traffic,  one- 
third  of  the  taxes  on  which  were  diverted  into  the  state 
treasury,  the  other  two-thirds  being  left  to  the  local  units 
of  government.  Efficient  management  of  the  finances 
would  now  have  introduced  order  and  stability  into  the 
budget,  but  this  apparently  could  not  be  secured  at  the 
hands  of  the  legislature. 

In  1891  Congress  refunded  the  direct  tax  to  the 
states,125  which  had  been  collected  at  the  time  of  the  Civil 
War,  and  Ohio  received  $1,332,026  as  her  share.  Of  this 
amount  $1,000,000  was  placed  to  the  credit  of  the  sinking 

wGov.  Mess.  Exec.  Doc.,  1889,  I,  iii. 
""Act  of  March  2,  1891. 


107]  RECEIPTS  AND  EXPENDITURES  107 

fund  and  $332,026  to  the  general  revenue  fund.120  But 
prosperity  had  quite  as  bad  effects  on  the  finances  as  had 
adversity.  The  general  assembly  took  advantage  of  the 
presence  of  this  large  sum  in  the  sinking  fund  to  remit 
taxation  for  sinking  fund  purposes  altogether  in  1891,  in- 
stead of  applying  it  to  a  reduction  of  so  much  additional 
debt.127  The  addition  to  the  general  revenue  fund  was 
not  much  more  than  sufficient  to  clear  up  old  liabilities, 
but  the  general  assembly  was  beguiled  into  extra  large 
expenditures,  and  closed  the  year  with  a  deficit  of  $151,000. 
This  deficit  consisted  of  outstanding  liabilities  for  miscella- 
neous matters  ($133,000)  and  for  the  Boys'  Industrial 
School  at  Lancaster  ($18,000),  and  had  to  be  met  out  of 
the  revenue  of  the  next  fiscal  year.128 

The  receipts  for  1892  would  have  been  adequate  to 
meet  all  these  expenses  and  leave  a  balance  in  the  treasury, 
had  not  the  state  board  of  equalization  taken  this  oppor- 
tunity to  reduce  the  taxable  property  on  the  grand  dupli- 
cate, as  a  result  of  which  the  state  revenue  was  reduced 
about  $100,000.  It  seemed  as  though  the  pressure  to  reduce 
taxation  was  so  strong  that  it  could  not  be  resisted,  even 
though  such  reduction  threw  the  budget  out  of  equilibrium, 
deprived  needed  state  services  of  the  means  of  support, 
deferred  the  payment  of  the  debt,  or  involved  the  state  in 
deficits.  There  is  nowhere  discernible  in  the  financial 
measures  of  this  period  any  far-sighted  statesmanlike 
estimate  of  the  needs  of  the  future,  or  consistent  policy 
in  meeting  them.  Each  general  assembly,  and  even  each 
session,  pursued  a  hand-to-mouth  policy  without  any  regard 
for  the  future,  or  even  due  provision  for  its  own  needs  if 
these  involved  resort  to  increased  taxation.  In  his  annual 
message  of  January,  1893,  the  governor  admonished  the 
legislature  to  observe  economy:129  "I  enjoin  upon  the 

13iAct  of  April  30,  1891.  O.  L.,  p.  448. 

12IBy  act  of  April  30,  1891  (O.  L.,  p.  479),  the  only  state  taxes  levied 
were  1.4  mills  for  general  revenue  purposes,  and  I  mill  for  common  school 
purposes.  In  1892  the  sinking  fund  tax  of  .3  mill  was  reimposed. 

"*Treas.  rep.  Exec.  Doc.,  1892,  I,  524. 

'"Gov.  Mess.  Exec.  Doc.,  1892,  I,  4. 


108  FINANCIAL   HISTORY  OF  OHIO  [108 

general  assembly  that  the  total  appropriations  for  the  sev- 
eral branches  of  the  public  service  be  carefully  kept  within 
the  annual  revenue  of  the  state  government  .... 
carefully  scrutinize  the  estimates  submitted  by  the  heads 
of  the  various  institutions  and  departments  of  the  state 
.  .  .  .  the  revenues  of  the  present  year  will  not  justify 
the  appropriations  made  for  the  preceding  year." 

The  disbursements  for  1892  and  1893  were  each  year 
about  $70,000  in  excess  of  receipts,  but  these  were  met  out 
of  the  balance  on  hand,  though  this  was  reduced  consider- 
ably as  a  result.  In  the  latter  year  the  panic  of  1893  caused 
the  revenues  to  shrink  perceptibly,  and  legislative  economy 
became  imperative. 

Your  honorable  body  [said  Governor  McKinley  to  the  general  assembly 
in  January,  1894"°]  meets  at  a  time  when  the  state  is  suffering  from  pro- 
longed industrial  depression,  from  which  unhappily  there  appears  no 
immediate  prospect  of  relief.  .  .  .  Rigid  economy  should  be  practiced 
in  every  branch  of  the  public  service.  Waste  and  extravagance  should 
be  prevented.  ...  A  short  session  and  but  little  legislation  would  be 
appreciated  at  a  time  like  this. 

The  governor  took  advantage  of  the  opportunity  to 
urge  that  the  legislature  meet  only  biennially.  This  had 
been  provided  for  by  the  constitution  of  1851,131  but  the 
provision  had  been  evaded  by  holding  adjourned  sessions  in 
the  odd  years.  The  51st  general  assembly,  which  met 
January  2, 1854,  and  adjourned  sine  die  May  1  of  the  same 
year,  was  the  only  one  which  had  thus  far  obeyed  the  spirit 
of  the  constitution.  Recently,  however,  there  had  been 
much  discussion  of  the  subject  and  the  Republican  party 
had  embodied  in  its  state  platform  a  demand  for  biennial 
sessions.  As  this  party  was  now  in  power  in  both  branches 
of  the  legislature  it  proceeded  to  carry  out  its  pre-election 
pledges :  the  71st  general  assembly  met  on  January  8,  1894, 
and  adjourned  sine  die  on  May  21.  Of  this  action  the 
governor  expressed  high  approval  in  his  next  message,  and 


li0Gov.  Mess.  Exec.  Doc.,  1893,  I,  3. 

mArt.  II,  sec.  25,  of  the  constitution  reads:  "All  regular  sessions  of 
the  General  Assembly  shall  commence  on  the  first  Monday  of  January, 
biennially". 


109]  RECEIPTS  AND  EXPENDITURES  109 

stated  that  neither  the  state  nor  its  institutions  suffered 
any  inconvenience,  while  it  saved  the  people  f 75,000;  he 
recommended  a  continuance  of  the  practice.132  Since  that 
time  biennial  sessions  have  been  the  rule. 

In  spite  of  the  decrease  in  revenues  and  the  industrial 
depression  the  legislature  found  it  impossible  to  curtail 
expenditures.  In  fact  they  exceeded  those  of  the  previous 
year  by  $200,000,  and  incurred  liabilities  far  in  excess  of 
receipts.  To  meet  these  "casual  deficits'-  in  the  general 
revenue  fund  a  loan  of  $500,000  was  authorized  at  3  per 
cent,  interest,  redeemable  on  July  1,  1896.133  Of  the  pro- 
ceeds of  this  loan  the  law  directed  that  $85,000  should  be 
appropriated  for  an  agricultural  experiment  station.  For 
the  second  time  within  a  decade  now  loans  were  resorted 
to  for  current  expenditures.  Most  of  the  deficit  was  at- 
tributable to  the  increase  of  expenditures  for  the  public 
institutions  of  the  state,  and  in  so  far  as  this  represented 
a  capital  investment  might  have  justified  a  resort  to  the 
sale  of  bonds.  But  the  state  had  been  engaged  for  years 
in  a  policy  of  improving  and  enlarging  her  charitable  and 
correctional  institutions,  until  expenditures  for  such  pur- 
poses were  to  be  regarded  as  normal  rather  than  extra- 
ordinary, and  hence  adequate  provision  should  have  been 
made  for  meeting  their  cost  out  of  current  revenues. 

Unfortunately  business-like  methods  had  not  yet  been 
applied  eithe^r  to  the  construction  or  maintenance  of  the 
public  institutions  of  the  state.  In  the  purchase  of  sup- 
plies the  different  institutions  competed  with  one  another 
in  the  open  market.  The  concentration  of  such  work  in 
the  hands  of  a  state  official  or  board,  the  invitation  of  bids 
for  goods  with  definite  specifications  as  to  quality,  etc., 
and  the  purchase  of  supplies  in  wholesale  quantities,  would 
have  saved  many  thousands  of  dollars  to  the  state.  The 
creation  of  a  purchasing  board  to  buy  supplies  for  all  state 
institutions  was  advocated  by  the  governor,  who  at  the 


'Gov.  Mess.  Exec.  Doc.,  1895,  I,  26;  1896,  I,  14. 
'Act  of  April  25,  1894.  O.  L.,  p.  186. 


110  FINANCIAL   HISTORY  OF  OHIO  [110 

same  time  urged  economical  expenditure  upon  all  state 
officers.134 

A  tax  commission  had  been  appointed  in  1893  and  in 
their  report  had  urged  a  number  of  new  taxes.  This  advice 
was  followed  by  the  general  assembly  in  the  next  session, 
and  as  a  result  of  this  legislation  the  revenues  were  in- 
creased in  1895  by  receipts  from  a  number  of  additional 
sources.  Among  these  were  the  inheritance  tax,  and  the 
excise  taxes  on  express  companies  and  sleeping  car  com- 
panies. Perhaps  under  the  impression  that  these  new 
taxes  would  be  more  lucrative  than  they  actually  proved 
to  be  at  first— they  yielded  only  |25,000  in  1895,  and  $42,- 
000  in  1896,  but  jumped  to  $550,000  in  1897— the  legisla- 
ture increased  their  appropriations  even  more  rapidly. 
Expenditures  for  1896  were  over  $400,000  in  excess  of 
those  of  1895,  while  those  for  1897  showed  a  further  in- 
crease of  $240,000. 

The  expanding  disbursements  called  for  repeated 
remonstrances  from  the  auditor  in  his  reports  of  1897, 
1898,  and  1899.  "It  is  respectfully  suggested,"  he  wrote,135 
"that  the  general  assembly  adhere  to  the  plain  business 
methods  of  living  within  our  income  and  not  make  appro- 
priations in  excess  of  the  estimated  receipts.  The  estimated 
receipts  this  year  for  the  general  revenue  fund  are  $4,841,- 
851,  and  the  estimated  disbursements  $5,913,091.  If  appro- 
priations asked  for  are  made  it  will  necessitate  resort  to  the 
unbusinesslike  method  of  making  advance  drafts  on  coun- 
ties in  anticipation  of  taxes".  In  this  case,  however,  it  was 
the  heads  of  institutions  and  departments  that  were  ex- 
travagant in  their  demands.  The  estimates  were  heavily  cut 
by  the  legislature,  while  on  the  other  hand  the  revenues 
kept  expanding  even  more  rapidly  than  was  expected. 
From  now  on  expenditures  were  kept  within  income,  while 
the  balance  on  hand  kept  growing  until  it  reached  unrea- 
sonably large  proportions.  In  1908  the  balance  in  the 


.  Mess.  Exec.  Doc.,  1896,  I,  9. 
""Aud.  rep.,  1897,  p.  5.    The  report  of  1899  contains  the  last  comment 
in  words;  after  that  nothing  but  an  ocean  of  figures. 


Ill]  RECEIPTS  AND  EXPENDITURES  111 

general  revenue  fund  amounted  to  $4,488,748  or  over  50 
per  cent,  of  the  annual  expenditures.  This  sum  seems  un- 
necessarily large  as  a  working  balance,  and  by  so  much 
withdraws  from  the  people  an  unnecessarily  large  amount 
of  their  wealth.  It  should  not  be  the  mission  of  the  state 
to  accumulate. 

In  1898  the  outbreak  of  the  war  with  Spain  caused 
considerable  excitement.  The  legislature  hurriedly  appro- 
priated $1,000,000  to  defray  the  expenses  of  the  national 
guard,  the  naval  militia,  and  the  volunteers  of  the  state. 
They  also  authorized  the  issue  of  bonds  to  this  amount, 
to  run  not  longer  than  ten  years  and  to  bear  interest  not 
higher  than  4  per  cent.136  As  a  matter  of  fact  only  $200,- 
000  was  borrowed  by  the  sale  of  3  per  cent,  five  year  bonds. 
Expenditures  for  military  purposes  jumped  from  $166,000 
to  $516,000.  The  war  and  the  enthusiasm  were  soon  over, 
however,  and  expenditures,  which  in  1898  had  passed  the 
$5,000,000  mark  for  state  purposes,  receded  to  normal  pro- 
portions the  following  year.  In  1900,  however,  they  again 
passed  this  mark  and  this  time  permanently. 

The  year  1902  marked  the  practical  abolition  of  the 
general  property  tax  for  state  purposes  in  Ohio,  the 
revenues  from  other  sources  having  now  been  so  developed 
that  dependence  could  be  placed  upon  them  alone.  Real 
estate  was  left  to  local  taxation  and  personal  property  was 
taxed  indirectly  through  corporations  and  other  taxes.  As 
a  result  of  this  policy  it  became  possible  to  reduce  the 
state  levy  on  general  property  very  materially :  the  levy  for 
the  general  revenue  fund  was  omitted,  that  for  the  sinking 
fund  was  fixed  at  .18  mills,  and  that  for  common  schools 
at  .95  mills.  Although  the  state  debt  was  extinguished  the 
following  year,  it  was  necessary  to  retain  the  levy  for  the 
sinking  fund,  in  order  to  pay  the  interest  on  the  irreducible 
debt.137  While  this  change  caused  a  temporary  decline  in 

"•Act  of  April  8,  1898.  O.  L.,  p.  97. 

137The  "irreducible  debt"  is  a  mere  book-keeping  device  to  show  the 
amount  of  proceeds  from  the  sales  of  school  lands,  which  the  state  has 
used,  and  upon  which  it  has  pledged  itself  to  pay  interest  at  the  rate  of 
6  per  cent,  forever  for  school  purposes. 


112  FINANCIAL   HISTORY  OF  OHIO  [112 

the  state  revenues,  they  quickly  responded  to  the  condition 
of  general  prosperity  and  by  1906  were  larger  than  ever 
before  in  the  history  of  the  state. 

The  increase  in  state  expenditures,  which  had  been 
going  on  so  steadily,  was  occasioned  almost  entirely  by 
the  construction  of  buildings  for  the  care  of  the  dependent, 
defective,  and  criminal  classes  of  the  community,  and  their 
maintenance.  Over  $700,000  was  spent  on  permanent  im- 
provements in  1902,  and  in  the  seven  year  period  1902-8 
the  appropriations  for  new  institutions,  new  buildings,  and 
betterments  for  institutions  amounted  to  $7,366,000.* 38  In- 
cluding three  universities,  the  state  of  Ohio  is  now  main- 
taining twenty-six  institutions  at  an  annual  cost  of  about 
$5,000,000.139  The  expenditures  for  these  purposes  make 
up  over  six-tenths  of  the  ordinary  state  expenditures,  and 
about  half  of  the  gross  disbursements.  Cut  off  from  the 
exercise  of  its  activities  along  lines  of  internal  improve- 
ments by  the  constitution,  and  shut  in  on  both  sides  by  the 
growing  financial  importance  of  the  federal  government  on 
the  one  hand  and  the  local  governments  on  the  other,  the 
state  of  Ohio,  in  common  with  most  of  the  American  com- 
monwealths, has  taken  up  earnestly  and  well  the  work  of 
caring  for  the  unfortunate  classes  of  society.  Next  to  this 
work  in  importance,  though  not  in  cost,  would  probably 
rank  the  less  developed  function  of  supervision  and  regula- 
tion, such  as  that  exercised  by  the  boards  of  pharmacy  and 
medical  registration,  live-stock,  dairy  and  food,  and  fish 
and  game  commissions,  board  of  railroad  and  telegraph 
inspectors,  etc.  The  item  of  industrial  supervision  and 
statistics,  which  does  not  include  any  of  the  above,  amounts 
annually  to  about  $150,000. 

CONCLUSION. 

Our  study  of  the  budget  in  Ohio  may  now  be  briefly 
summarized  and  certain  conclusions  suggested.  The  early 
period  of  territorial  and  state  finance,  down  to  the  year 

"*Aud.  rep.,  1908,  p.  5. 

"*Gov.  Mess.  Exec.  Doc.,  1908,  I,  41. 


113]  RECEIPTS  AND  EXPENDITURES  113 

1825,  was  marked  by  thrift  and  economy.  The  farmers 
and  pioneers  who  composed  the  early  legislatures  were 
poor  and  hard  working,  unaccustomed  to  handle  large 
sums  of  money  or  to  think  in  large  sums,  and  they  ordered 
the  household  of  the  state  frugally,  as  they  did  their  own 
affairs.  The  time,  moreover,  had  not  yet  come  for  joint 
effort  through  state  action.  Such  concerted  action  as 
occurred  was  carried  on  through  the  local  governments,  as 
road  and  bridge  building,  but  in  general  the  period  and  the 
environment  developed  individualism  rather  than  co-opera- 
tion through  political  agencies.  Consequently  the  state 
expenditures  and  revenues,  except  during  the  War  of  1812, 
were  kept  down  to  as  low  a  point  as  was  consistent  with 
the  maintenance  of  an  orderly  state  government. 

The  control  of  the  budget,  except  for  the  legislative 
act  of  passing  it,  seems  to  have  been  centered  largely  in 
the  hands  of  the  administrative  branch  of  the  government. 
Statements  of  revenues  were  not  regularly  published  until 
1816,  and  those  of  expenditures  not  until  1822.  Revenues 
were  derived  almost  entirely  from  the  tax  on  land,  although 
this  was  supplemented  after  1816  by  a  tax  on  banks  and 
other  minor  receipts.  Even  such  an  important  legislative 
function  as  fixing  the  rate  of  taxation  was  often  left  to 
the  auditor  with  authority.  The  accounts  of  this  period 
were  simple,  but  not  always  well  kept,  or  at  least  not  ren- 
dered in  good  form  to  the  legislature. 

The  period  beginning  with  1825  witnessed  the  initia- 
tion by  Ohio  of  a  comprehensive  policy  of  internal  improve- 
ments. The  old  system  of  land  taxation  was  changed  to 
that  of  the  general  property  tax,  though  as  yet  in  a  modi- 
fied form.  But  most  of  the  revenue  for  this  purpose  was 
obtained  by  loans,  together  with  miscellaneous  receipts 
from  the  sale  of  land,  gifts,  etc.  The  state  finances  were 
administered  carefully  and  economically,  and  the  early 
canals  were  built  on  the  whole  cheaply.  The  legislature 
was  composed  of  capable,  honest,  hard-working  men,  who 
did  their  best  to  keep  down  expenses. 

But  the  system  of  accounts  was  loose  and  opened  the 


114  FINANCIAL  HISTORY  OF  OHIO  [114 

door  to  abuses  which  showed  themselves  during  the  later 
period  of  construction.  Carried  away  by  the  prevailing 
enthusiasm,  Ohio  undertook  about  1835  public  works 
beyond  the  needs  or  the  means  of  her  citizens.  The  money, 
easily  obtained  by  borrowing,  was  often  carelessly  spent. 
Canal  funds  were  handed  over  to  the  canal  board  in  the 
lump,  and  expended  by  them  according  to  their  discretion. 
The  ordinary  expenses  of  government,  too,  increased 
rapidly  during  this  period,  under  the  speculative  influences 
of  the  period. 

So  far  any  looseness  which  had  characterized  the  state 
finances  was  the  result  of  carelessness  or  ignorance.  But 
beginning  with  about  1845,  there  occurred  a  decade  of  leg- 
islative extravagance,  of  administrative  dishonesty,  and  of 
private  and  corporate  corruption,  which  happily  is  unique 
in  the  history  of  the  state.  It  was  a  period  of  wretched 
financial  management,  of  repeated  deficits,  of  loans  to  be 
applied  to  current  expenditures,  of  diversion  of  the  sinking 
fund  to  uses  other  than  the  payment  of  the  debt,  of  advance 
drafts  on  the  next  year's  income,  and  of  general  financial 
juggling.  Three  successive  treasurers  were  found  to  have 
defaulted  in  their  accounts,  their  misdeeds  having  been 
aided  and  concealed  through  the  connivance  of  bank 
officials  and  others. 

Beginning  with  the  year  1856,  under  Governor  Chase, 
a  thorough  house-cleaning  took  place  in  both  the  legislative 
and  executive  branches  of  government.  Various  salutary 
acts  were  passed,  debts  were  paid,  the  revenue  laws  en- 
forced, and  the  state  finances  put  in  excellent  order.  By 
the  time  of  the  outbreak  of  the  Civil  War,  Ohio  was  in 
splendid  condition  to  assume  the  additional  burdens  im- 
posed by  that  struggle. 

As  happens  so  generally  responsibility  brought  with 
it  care  and  good  judgment.  The  legislature  during  the 
Civil  War  period  showed  itself  able,  economical  yet  not 
niggardly,  and  patriotic.  And  the  people  of  the  state  re- 
sponded loyally  to  their  efforts.  The  administration  of  the 
finances  was  characterized  by  efficiency  and  probity.  By 


115]  RECEIPTS  AND  EXPENDITURES  115 

prompt  resort  to  increased  taxation  adequate  revenues 
were  provided,  and  there  was  but  little  necessity  for  a 
resort  to  loans.  Expenditures  were  also  kept  down,  for 
non-military  purposes,  by  a  rigid  economy,  especially  in 
the  case  of  local  units  of  government.  The  war  governors — 
David  Tod  and  John  Brough — were  men  of  high  character 
and  ability  and  unquestioned  integrity.  The  latter  char- 
acteristic was  especially  marked  in  Governor  Brough,  and 
it  was  said  of  him  that  he  would  leave  his  bed  in  the  dead 
of  night  to  investigate  any  act  of  official  dishonesty  that 
was  reported  to  him. 

After  the  war  the  budget  of  the  state  grew  very 
rapidly,  partly  no  doubt  as  a  result  of  the  rise  in  general 
prices,  partly  owing  to  the  natural  growth  of  the  state  and 
the  assumption  of  new  functions,  but  largely  also  because 
of  legislative  extravagance.  The  revenues  were  at  first 
abundant  and  UUJfti  seemed  lo  be  no  need  for  continued 
economy.  Such  a  policy,  however,  quickly  plunged  the 
state  treasury  into  a  series  of  deficits,  which  were  met  by 
advance  drafts  on  the  next  year's  receipts  or  by  question- 
able if  not  illegal  transfers  from  other  funds.  During  this 
period  the  statejmdertQok  the  care  on  a  large  scale  of  the 
defective,  dependent,  and  depraved  members  of  society,  and 
expended  large  sums  for  the  construction  of  buildings. 
Praiseworthy  as  this  policy  was,  the  planlessness  with 
which  it  was  carried  out  was  chiefly  responsible  for  the 
financial  embarrassments  that  occurred. 

Enforced  economy  characterized  the  jrears  from  1873 
to  1878,  when  the  industrial  depression  that  followed  the 
panic  of  1873  diminished  the  revenues  and  imposed  a  policy 
of  retrenchment  upon  the  legislature.  With  the  revival  of 
prosperity  the  general  assembly  embarked^ again  upon"  a 
career  of  improvidence  if  not  extravagance.  They  en- 
larged their  appropriations  without  providing  for  addi- 
tional revenue,  with  the  natural  result  of  chronic  deficits 
and  financial  juggling  to  prevent  actual  insolvency  of  the 
treasury.  Beginning  with  about  1895,  however,  a  number 
of  new  and  lucrative  taxes  were  introduced,  which  greatly 
increased  the  revenues  and  restored  equilibrium  into  the 


116  FINANCIAL  HISTORY  OF  OHIO  [116 

state  budget.  The  first  decade  of  the  present  century  saw 
the  practical  completion  of  the  construction  of  public  build- 
ings, the  payment  of  the  debt,  and  the  virtual  abolition  of 
the  general  property  tax  for  state  purposes.  The  state 
finances  are  now  placed  on  a  firm,  stable  basis,  which 
should  prevent  the  recurrence  of  any  of  the  financial  dis- 
orders that  have  characterized  them  in  the  past.  Un- 
fortunately no  assurance  is  thereby  given  of  stability,  con- 
sistency, or  farsightedness  on  the  part  of  those  who  make 
the  preliminary  estimates  or  of  those  who  finally  pass  the 
budget. 

This  thought  suggests  some  of  the  conclusions  which 
seem  to  the  writer  to  be  taught  by  the  study  of  the  budget 
in  Ohio  finance.  The  most  striking  feature,  of  recent  years 
at  least,  has  been  the  steady  and  strong  pressure  for  the 
reduction  of  taxation.  In  the  face  of  that  pressure  plans 
for  enlarged  expenditure  have  often  been  halted.  The  ex- 
perience of  Ohio  seems  to  disprove  the  dictum  that  a  finance 
minister — in  this  care  a  finance  committee — estimates  his 
needs  first  and  then  raises  the  requisite  revenue.  A  very 
real  limit  is  put  to  any  plans  for  spending  by  the  difficulty 
of  raising  the  funds.  As  a  consequence  it  is  very  difficult 
to  lay  down  any  far-reaching  plans  for  the  future.  State 
finances  suffer  from  the  hand-to-mouth  policy  of  an  elective 
legislature  and  executive,  chosen  for  short  terms  and 
anxious  to  be  returned  to  office. 

With  the  stripping  of  the  legislature  of  much  of  its 
financial  power,  as  was  done  by  the  state  constitution  of 
1851,  there  has  gone  on  a  gradual  deterioration  in  the 
character  and  purpose  of  the  general  assembly.  Shorn  of 
power,  their  field  of  expenditure  limited,  their  chief  in- 
terests are  office  and  party  politics;  indeed  there  is  little 
to  attract  good  men.  There  is  little  or  no  conception  of  a 
scientific  budget.  Many  good  citizens  believe  that  the 
state  governments  have  so  deteriorated  that  they  can  no 
longer  be  entrusted  with  the  exercise  of  large  financial 
powers.  And  so  we  come  to  a  veritable  impasse  from 
which  there  seems  to  be  no  escape.  We  may,  however, 
fairly  conclude  that  thet  powers  of  a  state  legislature  are 


117]  RECEIPTS  AND  EXPENDITURES  117 

too  important  to  be  entrusted  to  inferior  men.  We  need 
the  best  we  can  get,  and  in  order  to  get  them  should  make 
the  office  of  legislator  sufficiently  important  and  dignified 
to  attract  good  men.  One  method  of  doing  this  would  be 
to  restore  their  former  financial  powers  to  the  legislature, 
and  permit  the  undertaking  of  larger  enterprises.  The 
important  interests  involved  would  both  make  the  office 
more  attractive  and  call  for  greater  care  in  the  election  of 
good  men,  and  as  a  result  of  both  processes  we  might 
expect  to  see  the  character  of  the  legislative  and  executive 
branches  of  our  state  governments  greatly  improved. 


118 


FINANCIAL  HISTORY  OF  OHIO 


[118 


TABLE  I 

STATE  COLLECTIONS  AND  DISBURSEMENTS* 


Year  Ending 

Receipts 

Disburse- 
ments 

Balance 

Appropria- 
tions 

Nov   5    1800     .  .  . 

$     1,481 

1  i.  e.  audit- 

i. e.  bills 

Dec   10,  1801  « 

*r           •  »*r*-'O 

1  7,6  10 

ed  bills 

drawn  on 

1802  

*  /  j^\jy 

redeemed 

Treasurer, 

$88,693 

or  bills 

^  T"-    'y^y*j 

[average 

issued. 

March  9,  1803.  .  . 

25,194 

for  each 

$    14,917 

Dec.  5,  1804  

**«j*  •  y*r 
22.  50  5 

of  six  yrs 

$9.000 

T        ^iy    / 
20,OO8 

Nov.   20,   1805... 

****>*/"*/ 

22,033 

J  $H,782] 

^JVWV 

161 

22,103 

jNov.  20,  1806  

28,626 

28,685 

IO2 

19,207 

Nov.  20,  1807  

21,611 

21,017 

697 

21,708 

Nov.  20,  1808  

20,206 

20,902 

I. 

25,070 

Nov.  20,  1809.... 

37,484 

37,o83 

4O2 

35,36l 

Nov.  20,  1810.... 

34,280 

34,.972 

—  290 

45,289 

Dec.  2,  1811  

48,481 

48,175 

16 

31,130 

Dec.    3,    1812  

51,515 

42,975 

8,556 

37,002 

Dec.  6,  1813  

53,210 

35,58i 

26,185 

35,489 

Dec.  5,  1814  

117,788 

139,123 

4,749 

135,586 

Dec.  4,  1815  

265,573 

265,368 

4,954 

265,526 

Dec.  2,  1816  

312.343 

312,650 

4,646 

312,594 

Dec.  i,  1817  

108,513 

204767 

—  1,607 

202,886 

Dec.  7,  1818  

130,190 

117,400 

11,183 

117,632 

Dec.  6,  1819  

101,438 

83,544 

29,078 

86,992 

Dec.  4,  1820  

93,804 

85,793 

26,078 

112,460 

Dec.  3,  1821  

94,569 

96,777 

23,869 

100,774 

Nov.  15,  1822  

81,040 

78,995 

25,915 

77,470 

Nov.  15,  1823  

124,352 

101,077 

49,189 

69,889 

Nov.  15,  1824  

121,401 

107,055    - 

63,535 

95,621 

i 

119] 


RECEIPTS  AND  EXPENDITURES 


119 


pooooooooooooooooooo  oovp  oooooooooopooopo 

Jf£  4^4-4xGjOoOv>OoCoCoCoCoCoCo    to    to    10    10    tO 
4^  Co    to    «   O  VO    OOV|   ONOn  *  Co   to    "-I   O  VO   OOVJ   O\Oi 

Year  Ending  Nov.  15 

lOIOlvilO'-'On^teColOtOtOMlOfcOtO'-'HHfc-i-i 

vio\te*'Ooto>-«vSooonvi  oNco  Q  o  opco  to  oo 

vi  Co  00*  Co   00  "-i   OS  "-•   i-i   "-ivionOnOCnVOOoVO   O 

Gross   receipts   as 
given   by   auditor 

«  VQ  b\*  *  7»*  On  O  VI  Co  vb    to  VO  Co  bx*   O  bx^jp 
On  Q  vi   to   1-1  On  S   10  On  ON  vi  on  P-H   op  o\  to  OOOn  vj  vo 
On  vo   >-i  OSon  -H  vo   to  vo  vi  vi  on  vi  ONOn  On  ^.   O  VI   to 

M   K5    M    H.   tO   O\CX>   KltOtOtOtOKJtOlOtOtO'-i'-1'-' 
OJ  C*>   to  *O  vo  Oo   to   OOCo  Co  V|   QOCf\  Co    Q   O    to  -t>.    "  -&• 
>OCovi   tOCn   tO*.vi  O\^n  vi  OO  O   Osvo  VI  O\Co  4^  Cn 

Gross 
expenditures   as 
given   by   auditor 

•1  4^.  ^xlo  b  "bo  VI  CnbCoOvitn   -ivioo   O>4^    O  lo 
*>.   O\  O\  C»VO    to   O   O\  CT\  OsCn  •*>•    O  VO   O    O   CTsCo   10    « 
«-HtOCoO>-iCoOJ'-ii-iO\OOOOwOOi-iO4x   O\O 

t-t-10        viO\;                        >-cCnCotO«O\  C?\4>          » 
CoOi         tOCr«;                       4^.C3\Ovivivilo4iiCoO\ 

Loans  and  Trans- 
fers to  other 
funds   [column  2 
less  4] 

VJ  bNVl  Cn  b\vi   .                        M  \O  *•  b\Co  bNCn  >O  tji  -U 
O\  OOVl  vi   5o-P>.   •                        O\-£.  Co  Cn  On  Co   004^    10  <f> 
vi   to  vo   OOCo  vi  •                       O\tOtO«-iCnOCnO   00*. 

Real  expenditures 
for  State  purposes 
[i.  e.  auditor's 
bills  redeemed] 

VO   OpOVO    Ki   O\loO   O\GO  O\Co    to    O  VO  Co   O\\O    «    to 
4^.\O^tO«tovi\St0^5tOCo-Ho5ot^vO4^00OOO 

covi'pvii.'b  —  "o  b  ^b  vi  vi  ocVicob>bi>.4i.vi 

viOpOOOOvivi   —   to   0   00\p  vi  4^  tn  vi  vi  vo  NO   00 

4i.   O  J±   to   00  C\  00*.  Co   ON*    O3  C\  -i  Co    «  Cn  4x   QOOi 

1      1 
CovOONOv'-'IOIOJi.CoCoi-iwto                _h-on  O\4^ 
lO4i.*.Co   -iCoVi   o   ~Co   O\O   O   O\  O\On  vi  Jx  Ji.  VQ 

Balance  as  given 
by   Auditor    [dif- 
ference between 
i  and  2] 

00  OOCo  Cnji.    O    OCoCovo   OxQvi   O   to   O\tO*.   OOtO 
to   Q    OsC/\  O   OOCn   O  *•  vo    to   O    OOVI   QO  to  VQ  VI  c/i   O 
to   OO-^CovjCoOiOO  ON\O  Co   OCnCn  OCovOCn  OOVt 

Payments,  i.  e. 
payments  made  on 
account  of  appro- 
priations 

O  vo   to   O\Co  vo   OxOOOsCo   HH   M  vo  Co   ONVO   O   1^ 
to    «  Co   O\  O   O    OOOi  Ji.   O  vi   M    to  VO  Co   CCO   O\ 

b\co  «  co  "to  vb  b  bob  fc>co  «  i.  "bovi  «  vi  Z* 

vi    (o  On  Co   c5\Co   Q  On  Co   00  O    10   OOVl  vj  vo  On  4^ 
vi(3on  —   lovivOCoOOOO  OSOn  On  OOvi  vi  vi  O 

On    ~  'Ji  CoCo4>toCo4>*tO                                " 
Co  O  ^«   OOCo  To   8  Co  S  p  *  JJOVi  4>  Co  vo   O  _00 
Co  4^    tO  "OO*.  On  Co  bvvb  *•  b\*  b  VO  vi  Co  "HH    M 
4>vo4>4i.OnCovi  OOOvi4i.   OOtOViviooVO   M 
^OTovOvi   -  J_  01  Ovion  to   OOOOOCovOvi 

Unexpended 
balances 

Appropriations 
[i   e.   6  +  7] 

^v?-8v04t! 

:  :  :  :  :  ::::::::  :  :  <6\-0\ts  'oVv? 

in 

H 


f 


>  H 

2  > 


120 


FINANCIAL  HISTORY  OF  OHIO 


[120 


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'suopBudojddv 


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—      Tf   HH     ON   Oj 

co  T?  co~ IN  of  IN 

O\  ON  -i   O   ON  to 
w    1-1    04    00  CO  Tf 


O  00  OOOO  to  11   11 
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to  rf  to  >-.  vo  vo  IN 

I-H   TJ~  M   o   n  VO   ON 
O   04  to  Q\OO  rf  >H 

IN  to  TT  o  IN  IN  IN 


CO  ON  IN 
TfN  O 
«  M  HH 


IN  n   04    rj-  Tj-  to  O\00   IX  tOOO 
Cq   c^tOfO  Tt\O  ^O   to 
-OO  iOO\fOONO\txtx 

N  fi  w  W5  ^  t?  «5  *  ^  »5  !^  e  •<?  vo 

OO   O\i-i          TflO        OO^fO          w 
\    **  I     >*          N   to  w 


co  ONOO  to  IN  CO  O  CO  tx  trj  TfOO  O\  M" 
O\VO  Tf  >-i  OO  N  OO  O  to  TJ-VO  Jx  rr  O\ 
tr)iOi-.  Ox  tx\O  N  \O  >-i  tOOO  lO  n  «*> 


TJ-  ^-  to  to 


VO  VQ 
VOOO 


5\O   ^}-\O   TJ-  O   <TS\O   OO\t^OOi-i 

)    MO   >-    N   O\M5\'tCS    «   tOi-H    (N 

TCM^OvO\>ON   c^toO   O  t^OO  OO  ^   N   «  00 


pajtpny  "3  '! 
sjuauiasjnqsiQ 


i-T  of  i-Tco"  t<  t-Too"  rx  ro  of  vd"  6"  i-<" 


'f  o^  cooo" 


«       «  of 


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jo  jjoddns 
joj 


INOOOCO   OOO 
CO   ^  "   O\  •*  f*5 
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•<f  CO  Pf  f  tN  to  tOOO 
tO\O  04  ro  tx  IN\O  rr 
•i  1-1  Ol  O1  04  0)  f^tN 


,, 

i-T  to  o"  of  rf  tN  rf  OO~  i 
ii-«tO>iiO»'<a-O    O> 
vCVOOO   C\  ON  IN.  IN 


to  IO\O    •<*•  ^f  tO\O   OOOOoOtOONN    04    04    HH 


vO 
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to  co  i-   ONVO  C 


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'aiB^S    JO}     SJU31U 

-asjnqsiQ 


ON  ^  Tf  VO 
1-1  tOOC  O 
i-  04  rj-  04 


O\  tOOO   O   <*5 


OO   O   co  to  fO  O^vo   INVO  0(5  to  Ix  O   to  to 
>-~ofofofofofofofcicococococococotoio  tOVO   Of  IN  10 


rfOO  »O  CO  1-1 

fOO\tOi-l    IN 

•••• 


'S3XB;    [BUBO 

'spunj   jooqos 

UOUJIUOO    '3nU3A3 

Suipnpui 

SSOJQ 


f  to  04  OiOO  IN  r^OO  «*>  <*5  ^O  01  PO  O  IN  c*5VQ  O  "-1  04  COVO  •*  co  tOOO 
OOO|-'toiOOQO«NiotOO4iOlNONO4vO04  tOVO  O  \O  "-1  f^OO  C> 
5  IN  t^  i-  to\O  •toil-  «  CO1-1  INi-<roONOOO\iO  O\VO  IN  Tj-vO  O\  •"  IN 


O4   O\tOi-   CJ\O 

«    f500  OO   to  04   tOVO   CO  -^  COOO   Q 

VO   TT  to  lOOO   O  OO   INVO  to1-!   tNiotOCO04   tOt^n-VO 
—"  of  of  of  fi  of  of  fO  Of  CO  co  co  co  co  co  co  tovo"  to  IN  i->"  I 


tOlNi-i  ON  "• 
to  TfOO  O\  Tf 
n  COINCOO4 


tOVO    fNC 

oc-  o^"c3"c 


Ov  O   n    04   CO 


137] 


RECEIPTS  AND  EXPENDITURES 


137 


,\O  uivp  Ol  Tf  —  txvO  OlOv'-'QNONOVO  IxOO  O  OJ  Oi  g> 
Ix  tx  Ov  10  0)  00  tx  Ix  OX  ^O  0)  00  lOO  i—  »OOO  Ix.  »O  f500  O\ 
1-1  CiONM  ON  Ol  ON  Tj-  04  00  fi  ^"VO  00  vO  OO  t*5  ^t<X)  O  >O  Tf 


cf  rx  fi  t^o"  ol  —  —  if)\ 

-TO    Csi0^t?5    l^rfio 
10  iO\O   'T  Ov 


C^vcT  10  d\  rC  100 

1^0      fO^O    't  10  *-fOO 
O\  lOOO   N   PO\O  >O  10 


O   Ov 
04    O 


piEd  A[aadoadiui 
S3XB}  punpy 


Ix  Ix  IxvlS  00  00'   »O  O\  Q>  O)   iO 
1-1   IxOO    01    H- 


o;   piBj 


C\  01    OJ    M 
O   «*5         -^ 


xo  Tf  -H    fO  O\ 


i-    Ot 
vO  VO 


asEtpand  PUB  uop 
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1   O  00 

;oo"  cK 


SDIJSIJEJS 

pus  uoistAjadng 
[Eujsnpuj 


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of  ro   ;  -f  ^o  of  vo"  rf  •-<"  of  r}-  i-T   ;    ;    ;    ;    ;    ;  co  rf 


pipa 
PUB  guioj-j  . 

PUB   SJ9lp|OS 


[sdjBDS 


—   lx  O  M  OC    IxO    —    C>)    O   •-   *O  i- 
i-T  Pf  of  <^  Of  ro  CO  rO  -f  -^  fO  Of 


• 

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VO      .T-VO^OvOO 
i-T     '  >O     '.  CO  PO  CO  Tf  of 


ON 

00 


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puB  uotprujsucQ 
sSutpijng 


q  e  q  "f  «  —  o  -  i  ^  ro  '-r  -tc 
o  10  o  *o  10  o^  ™f  —  *ooo  vcToc^o 


i  00  vO  vo 
I    >-    04    *- 

F  <^  of  of 


33UEU3UHEJV 

sSutp[tng 


ic  —  "i-roco-iO)oooi(N>oo>*tQoix.o>  rj-v 

I  vO   —   10  I-.  w^  —   (N   T  N  OC   "^vo   Ix  —  OO   0)  vO   TOO  v 
^60  O  "T  -t  10  —_  q^  CN  e3>oO  10  ix  c^  —  vq_CC  <o  i-  c\c 

—  —         -f  o"  of  ixvo'oc  ON  O*  T  ON  p'vOOO'vp" 


V>    O  O   —    "1    "}  -T  <OvO   IxOO    O  O   ~    0| 
-t  -r  >i~,  >r.  ir,  \r.  10  10  10  iO  >O  lOMD  vOvO 

oooocooooooooooooooooooo 


138 


FINANCIAL  HISTORY  OF  OHIO 


[138 


plIE 


JIBddJ 

puE  uoipnjjsuon 
s8uipjtng 


sSuipjtng 


'S[EUBD 


puB 
SAVBJ  Supnqujsip 

pus  Suiqsiiqnd 
'Suipuiq  'Suijuuj; 


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S9UE[EC; 

J3q;o  - 


38E3IIIU   pUB    A"E,J 

A"[qui3ssy 


S3UBIES     UBqj 

o  sasua 

S3DIHO 


S3UEIES 


T  CO  ONVO    T  —    5QVO   T  1-1   O\  co  ON  T  lOOO   CO  O\00   01    "t  ON  10  CO 
10  O   tx  TVO    CO  TOO   OiO*-Oio01coiOiO»-i>-'01TOl5o001 


T  ix  -    co  COOO 
60- 


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0)  01   ~,  vo 


O   T  O   ON  T  covO  «O 01  OO  *OV 

tx  1-1   IxOO   01  OO  lOVO 1-1  VO   CO 

TONtxOOi-ii-iiO OOi-  iov 


I-  \rf  (500" 

0<01r'3i-i 


TvO  O  1-1  10 

O   ON  O  co  « 

tx  tx  1-1    i-«  VO 

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txVO  tx  01   O\vO   O   — 

txoq oo^  ON  ix  q_vo_  cr 

O"  CN  o"  o",vo"  10  o"  — 


OWOOiOiOi-i    CO1^-  lOOO    TOO  OO   Ix  O\  CO 

q\oo  i-ioo  oi  >-i  01  oioooo  «  10—  TT 
y$vS  10  i-TooT  C~oo"  o"oo"  o"  o"  ix  10  10  of  oo" 

05   01   01    tx  $\VO    T  co  T  01    —    O   O   txOO  00 


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tx  co  01  vo   Ix 


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O  tx  PO  IOVO  VOOO 
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—  I-H  a  uj  rx  loo  txo  COCOTO\IXT  TOO  co  >-  <^ 

ON  TVO    T  t>.vO_  5  VO   «OVO   Ol    i-^VO    1-1   txOvq^>-i   txi-^ 
VO*  Ix  Ix  i-"  O~  ON  iovo"  co  co  tx  >O  o"  ^  ^  10  O\  c"  O  10  O~ 


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O\  txVO 


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co  10 
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tx  T  i-,  01  '55  vO  T  tx 

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T  iO  T  10  txOO  O\OO  00  ON 


30  01  O  lOtxQ  01VQ  O100  i-ivOOOOOVO  txto 
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co>-i  OOQiOTlx—  txONtxco  txOO^  O_  —  O_ 

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•-•OlOlOlCVlOlOlOlcococococococo 


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*-   01   co  "T  IOVQ   txOO  O  O   —   0<   co  T  10 

OOOQOCOOOOOOOOOOOO    O  QN  C*  &&& 
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139] 


RECEIPTS  AND  EXPENDITURES 


139 


rOOO 


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V* 


142  FINANCIAL  HISTORY  OP  OHIO  [142 

TABLE  III— FOOTNOTES  ON  EXPENDITURES— 

Note  on  i. 
1822-40 — Judges  of  Supreme  Court,  President  of  Court  of  Common  Pleas 

are  included  in  the  list  of  executive  officers. 

1854 — The  list  of  executive  officers   now  includes  School  Commissioner 
and  State  Librarian.     Salary  of  the  latter  has  been  for  a  number 
of  years  back  $300  or  $400. 
1876 — Stationery  and  documents  are  included  in  the  Secretary  of  State's 

department. 
1878 — It  was  necessary  to  take  the  fully  itemized  account  for  this  year 

as  no  other  was  given. 

Note  on  la.     Placed  the  following  items  in  la: 
1887 — Portrait    of    Garfield,    statue    of    Wm.    Allen,   portrait    of 

Foraker    $  10,900 

Note  on  2. 

18/3 — Constitutional    Convention 58,684 

1874 — Constitutional    Convention 127,543 

Note  on  33. 
1831 — Payment    of    Sheriffs    for    attending    court    in    bank    for    sundry 

years,  $171. 
Note  on  4. — Under  Education  is  included  the  purchase  of  books  and 

libraries. 
Note  on  5. 
1829 — An  appropriation  first  made  in  this  year  for  educaiton  of  deaf  and 

dumb. 

1835 — Lunatic  Asylum  mentioned  in  the  list  for  first  time. 
1837 — Appropriation  for  Blind  Asylum  first  made. 
1857 — The  item  "Ohio  Reform  Farm"  first  occurs. 

1873 — The  charitable,   correctional,   penal   institutions   also   Soldiers'  and 
Sailors'  Home  from  now  until  1879  appear  under  the  Asylum  Fund 
created  at  this  time. 
1879 — The  above  again  come  under  General  Revenue. 

Note  on  5a. 

1832-39 — Appropriations  towards  the  erection  of  a  new  penitentiary  made. 
1833 — Appropriation  for  D.  &  D.  buildings. 
1843-44 — Appropriation  for  enlargement  of  Lunatic  Asylum. 
1852 — Appropriation  made  for  several  new  lunatic  asylums   [Newburgh, 

Dayton,  etc.] 
1854-60 — Appropriation  made  for  improvements  and  new  buildings  at  all 

institutions  during  these  years. 
1905 — The  number  of  these  institutions  increased  to  14. 

Note  on  6. 

1824 — Revising  the  laws  is  also  included. 

1867 — Exp.  of  land  appraisers,  sale  of  land  scrip,  travel  of  school  com- 
missioner is  included  with  distributing  journals,  etc.,  this  year. 


143]  RECEIPTS  AND  EXPENDITURES  143 

i86g — Exp.  of  Presidential  and  special  elections  included  in  6  this  year. 

Note  on  7. 
1834 — Item  "U.  S.  Road"  occurs  for  first  time. 

Note  on  73. 
1830 — Payment  of  Registers  and  Receivers  of  O.  lands  their  percentage 

on  amount  of  money  received  for  sale  of  lands. 
Note  on  8. 

1884 — For  a  number  of  years  back  the  item  "State  House  and  Grounds" 
has  occurred  with  Adjutant  General's  department  so  it  was  placed 
under  9.     It  again  occurs  as  a  separate  item. 
Note  on  8a. 
1838-60 — Appropriation  made  for  new  State  House. 

Note  on  9. 

1861,    with     the    outbreak    of    the    Civil    War    various    special     funds 
were  created  for  war  expenditures,  and  these  consequently  do  not 
appear  in  the  expenditures  of  the  general  revenue  fund. 
1879-80 — Adjutant  General's  department  includes  also  care  of  State  House 

and  grounds. 
Note  on  10. 
1890 — Historical  and  Archaeological  Society,  $1000. 

Note  on  n. 
1907,    This  item    shows    a    great    increase,    owing    to    the    building    and 

maintenance  of  a  state  sanitorium. 
Note  on  14. 
1870 — Appropriation  made  for  Soldiers'  and  Sailors'  Home. 

Note  on  15. 

1876 — Board  of  Centennial  Managers,  $34,350. 
1884 — Ohio  exhibit  N.  O.  Exposition. 

Note  on  16. 

1874 — Inspector  of  Work  Shops  and  Factories,  Commissioner  of  Labor 
Statistics,  Mine  Inspector,  Insurance  Commissioners,  Commissioner 
of    Railroads    and   Telegraph,    and    1902    Examiner    of    Stationary 
Engines. 
Note  on  17. 

1870— Geological  Survey,  $19,816. 
1890— Howes  Historical  Collections  of  Ohio,  $6000. 
Note  on  21.       • 

1822 — (a)   Mileage  for  County  Collectors  in  traveling  to  seat  of 

government  to  make  annual  returns $  507 

1822 — Appropriations  to  sundry  persons 1,138 

1823— (a) 470 

1823—  (b) 1,942 

1824— (c)  To  Edw.  Pritchard's  heirs,  money  deposited  for  redemp- 
tion of  land  sold  for  tax 13 


144  FINANCIAL  HISTORY  OF  OHIO  [144 

1825— (d)  To  Bank  of  U.  S.  for  amount  judgment  against  officers 

of  State 2;055 

1825 — (e)  Cost  of  said  suits „ 233 

1834 — (f)  Double  entries  included  in  list. 

1841 — (g)   Bounty  on  silk  included  in  list. 

1843 — (h)   Claims  included  in  list. 

1850 — '(i)  Expenses  of  Constitutional  Commission. 

1862— (j)  U.  S.  direct  tax 380,100 

1865— U.  S.  direct  tax 766,897 

1867— U.  S.  direct  tax 185,130 

1873 — Procuring  selections  of  school  lands 693 

1882 — Drawn  on  account  President  Garfield's  obsequies 36,894 

1884 — Relief  flood  sufferers 100,000 

1891 — War  claims  vs.  General  Government 28,889 

J905 — Bureau  of  Inspection 12,544 

1905 — Public  Audit  Expense 46,356 

The  "Miscellaneous"  column  has  been  large  since  1896,  but 
it  stands  in  the  Auditor's  table  simply  "Miscellaneous",  not 
itemized  at  all. 
Note  on  21. 

1906,  In    addition    to   the    item    "Miscellaneous"    as   given   by   the 
auditor,  is  included  $113,181  for  the  prosecution  and  transportation 

of  convicts. 

1907,  Additional  items  are  $100,625  for  the  prosecution  and  transpor- 
tation of  convicts;  $310,703  for  the  state  university;  $114,874  for  the 
state  highway  department.     1908,  For  the  items  just  given  the  fol- 
lowing sums:     $130,880;   $319,439;   $289,881.      1909,   For   the  items 
given  in  1907  the  following  sums:    $134,235;  $425,066;  $423,948. 

Note  on  22. 

1873-78 — Appropriations  for  charitable,  correctional,  and  penal  institutions, 
and  for  the  Soldiers'  and  Sailors'  Home  were  included  in  the 
Asylum  Fund  for  these  years,  and  were  consequently  not  reported 
in  the  state  expenditures  by  the  auditor.  The  former  were  ascer- 
tained and  are  stated  in  column  5,  but  are  not  included  in  the  totals, 
which  are  therefore  unduly  small  for  these  years. 


CHAPTER  111 

FINANCIAL  ADMINISTRATION  AND  BUDGETARY 

PRACTICE. 

I.  TREASURY  ADMINISTRATION  AND  ACCOUNTABILITY. 

The  constitution  of  1802  placed  but  slight  restrictions 
upon  the  financial  powers  of  the  legislature.  Less  than  half 
a  dozen  provisions  controlled  their  action  or  gave  directions 
as  to  their  conduct,  and  most  of  these  had  to  do  with  the 
framing  or  passage  of  legislation,  including  the  budget. 
Three  sections  only  concerned  the  treasury  department: 
one  provided  that  no  money  should  be  drawn  from  the 
treasury,  but  in  consequence  of  appropriation*  made  by 
law;1  the  second  directed  that  an  accurate  statement  of 
the  receipts  and  expenditures  of  the  public  money  should 
be  attached  to,  and  published  with  the  laws  annually.2  The 
third  directed  that  the  state  treasurer  and  auditor  should 
be  triennially  appointed  by  a  joint  ballot  of  both  houses 
of  the  legislature.3  Appropriate  legislation  to  enforce  the 
former  requirement  does  not  seem  to  have  been  passed 
immediately,  for  two  years  later  a  joint  committee  to 
examine  the  books  and  accounts  of  the  auditor  and 
treasurer  reported  that  the  auditor  was  still  exercising  the 
power,  granted  originally  by  the  territorial  government,  of 
issuing  warrants  on  the  treasury  to  an  unlimited  amount.4 
The  mutual  checks  between  the  treasurer's  and  auditor's 
offices  were  also  found  to  be  inadequate  to  secure  account- 
ability. The  committee  recommended  checks  on  the  issue 
of  warrants,  the  auditing  of  accounts,  and  a  detailed  state- 
ment of  taxes,  disbursements,  etc.5 

The  first  appropriation  bill  which  was  passed  after 
Ohio  became  a  state  defined  the  duty  of  the  state  auditor : 
he  was  to  issue  warrants  on  the  treasurer,  and  to  lay  his 

'Art.  i,  sec.  21, 
3 Art.  i,  sec.  22. 
"Art.  VI,  sec.  2. 
'Ho.  ].,  1803-4,  P-  199- 
'Ibid.,  p.  202. 

145 


140  FINANCIAL  HISTORY  OF  OHIO  [146 

accounts  and  vouchers  before  the  legislature  annually. 
The  examination  of  these  must  have  been  made  by  the 
legislature  as  a  whole,  for,  in  spite  of  the  constitutional 
provision  therefor,  no  report  of  the  auditor  or  of  an  audit- 
ing committee  was  printed  in  the  early  documents  until 
1814,  when  for  the  first  time  detailed  statements  of  the 
revenues  were  published.  Except  for  the  years  1803  and 
1813,  no  detailed  statements  of  expenditures  were  made 
until  1822.6  In  these  early  days  the  legislature  was  small, 
the  financial  operations  of  the  state  very  limited,  and  con- 
siderable discretion  was  left  to  administrative  officers. 
In  fact  little  control  was  exercised  over  their  actions. 
Complaints  were  made  in  subsequent  years  that  no  check 
existed  against  the  agent  of  the  Scioto  salt  works  in  ac- 
counting for  money  received  by  him;7  and  that  no  check 
existed  upon  the  treasury  department  with  respect  to  the 
three  per  cent,  fund.8 

Gradually  legislation  was  passed  which  corrected 
these  early  evils  and  secured  better  accountability  on  the 
part  of  administrative  officers.  The  act  of  February  18, 
1809,  carefully  defined  the  duties  of  the  auditor  and 
treasurer  of  state;9  the  salary  of  the  former  was  fixed  at 
$1200  and  of  the  latter  at  |500.10  The  second  section  of 
the  act  illustrates  interestingly  the  scarcity  of  money  that 
existed  in  a  frontier  community,  such  as  Ohio  was  at  this 
time,  and  the  means  taken  to  supply  the  need.  It  required 
the  auditor,  in  payment  of  obligations  owing  by  the  state, 
to  issue  bills  of  small  specific  amounts,  payable  at  the 
treasury,  with  interest.  They  provided  a  convenient  cir- 
culating medium,  and  also  tided  the  treasury  over  several 
embarrassing  periods,  when  the  outstanding  warrants  ex- 
ceeded the  available  funds  in  the  treasury.11  By  1813  the 

'See  chapter  II,  Receipts  and  Expenditures,  p.  68. 
'Gov.  Mess.,  Ho.  /.,  1810,  p.  27. 
*Gov.  Mess.  Ho.  J.,  1812,  p.  12. 
'Revised  by  act  of  Jan.  13,   1816. 
"Raised  to  $600  by  act  of  Feb.  10,  1814. 
"Aud.  rep.  Ho.  J.,  1813,  p.  24. 


147]  FINANCIAL  ADMINISTRATION  147 

financial  embarrassment  had  passed  and  the  auditor  was 
instructed  to  draw  a  single  warrant  for  the  whole  amount 
of  a  bill  with  the  consent  of  the  person  to  whom  it  was 
due.12  In  the  following  year  the  auditor's  certificates 
ceased  to  draw  interest ;  it  was  also  provided  that  no  money 
should  be  paid  out  by  the  treasurer  except  on  the  warrant 
of  the  auditor.13  After  the  financial  stringency  of  1819-20 
the  need  of  an  accredited  circulating  medium  was  ap- 
parently again  felt,  for  small  warrants  of  $10,  $20,  or  any 
fraction  between  them,  or  for  the  whole  amount  of  a  bill, 
were  authorized.14  This  was  practically  repeated  two 
years  later,  and  the  faith  of  the  state  was  pledged  for  the 
redemption  of  these  bills.15  In  1831  this  whole  mass  of 
legislation  was  repealed.16 

Further  light  is  thrown  upon  the  condition  of  the 
currency  by  the  state  of  the  funds  in  the  possession  of  the 
state  treasury  at  different  periods.  Committees  appointed 
in  1820  and  1829  to  enquire  into  the  state  of  the  funds  in 
the  treasury  reported  as  follows  :17 

1820.  1829. 

Amount  of  gold  coin $    3,931  $ 

Amount  of  silver  coin 17,279  237 

Amount  of  bank  paper 141,336  48,000 

Credits    in    banks,    paper    representing    loans,    and 

redeemed  auditor's  bills 51,850  12,196 


$214,396  $6o,433 

A  deficit  of  $11,432  in  the  funds  of  the  treasurer  was 
reported  at  the  same  time  by  the  committee  of  1820.18 

MAct  of  Feb.  9,  1813. 

"Act  of  Feb.  ii,  1814. 

"Act  of  Feb.  2,  1822. 

"Act  of  Feb.  24,  1824.  The  auditor  was  authorized  to  issue,  when 
requested,  bills  for  $10  and  $20;  but  for  the  whole  amount,  if  it  were 
under  $10. 

16Act  of  Jan.  31,  1831. 

"Ho.  J.,  1820,  p.  307.  Ho.  ].,  1829,  p.  115.  In  1825  funds  consisting 
of  depreciated  bank  notes  and  claims  against  banks,  amounting  to  $11,511, 
were  sold  for  $4,345  in  cash.  "Auditors'  bills"  are  treasury  warrants. 

"Ho.  J.,  1820,  p.  373-5. 


FINANCIAL  HISTORY  OF  OHIO  [148 


THE  CANAL  ACCOUNTS. 

When  the  state  entered  upon  the  work  of  internal 
improvements  it  adopted  a  plan  of  raising  and  disbursing 
the  moneys  needed  for  this  purpose,  which  introduced  con- 
fusion into  all  the  financial  operations  of  the  state.19  In- 
stead of  making  use  of  the  existing  financial  officers  and 
machinery  of  the  treasury  department  it  created  a  new 
and  independent  financial  agency,  the  Board  of  Canal 
Fund  Commissioners,  whose  duty  it  was  to  raise  and  con- 
trol the  disbursement  of  the  funds  needed  for  the  construc- 
tion of  the  canals.  Another  board,  of  Canal  Commis- 
sioners, was  created,  which  had  in  charge  the  work  of 
actual  construction.  Practically  all  of  the  money  used  for 
building  the  canals  was  raised  by  the  sale  of  bonds  in  New 
York  or  Europe.  The  moneys  so  obtained  were  paid  in  to 
the  Manhattan  Bank  of  New  York  City,  which  acted  as 
agent  of  the  state,  and  were  there  subject  to  the  order  only 
of  the  board  of  canal  fund  commissioners.  These  funds 
were  drawn  upon  as  the  need  arose  and  remitted  to  various 
Ohio  banks  which  acted  as  local  agents  in  the  payment  of 
bills  rendered.  Other  funds,  such  as  receipts  from  taxes, 
sales  of  land,  etc.,  were  deposited  in  the  state  treasury, 
where  they  were  under  the  disposal  of  the  treasurer. 

The  canal  commissioners  drew  upon  these  local  funds 
to  meet  the  expenditures  on  the  canals.  There  were  four 
branches  of  expenditure,  each  of  which  called  for  somewhat 
different  treatment.  The  most  important  was  of  course  the 
payments  to  contractors  for  the  work  of  construction. 
Upon  receipt  of  a  certificate  from  the  engineer  superintend- 
ing the  work,  the  acting  canal  commissioner  would  draw 
his  check  for  the  amount  of  work  actually  done.  Duplicate 
accounts  were  kept  by  the  engineers  and  the  commissioners, 
so  that  errors  could  be  promptly  detected;  and  the  com- 
missioner was  forbidden  to  draw  any  of  this  money  in  his 

"See  Rep.  of  Finance  Com.  of  Ho.  of  Rep.,  1827,  in  Ohio  Canal  Doc., 
p.  310,  ff. ;  Rep.  of  Com.  to  examine  books,  etc.,  in  Exec.  Doc.,  1845,  II, 
5-12;  578-586. 


149]  FINANCIAL  ADMINISTRATION  149 

own  name.  The  same  proceedure  was  followed  with  re- 
spect to  expenditures  for  lands  purchased  for  the  use  of 
the  canals,  and  for  damages  assessed  in  favor  of  any  in- 
dividual ;  requisitions  were  made  by  the  acting  canal  com- 
missioners upon  the  fund  commissioners  in  favor  of  per- 
sons entitled  to  specific  sums.  Only  in  the  case  of  inci- 
dental expenses,  for  the  payment  of  wages,  salaries,  etc., 
was  the  money  deposited  subject  to  the  unrestricted  check 
of  the  acting  commissioner.  But  duplicate  receipts  were 
taken  for  all  such  payments  and  these  were  filed  with  the 
accounts  of  the  commissioners.  These  guards  and  restric- 
tions met  with  the  general  approval  of  various  committees 
of  the  general  assembly,  appointed  to  examine  and  audit 
the  accounts  of  the  canal  fund.  Down  to  1833  certainly 
there  is  no  evidence  to  be  found  of  any  dishonesty  or  mis- 
use of  canal  funds  by  either  of  the  boards  entrusted  with 
their  control.20 

The  system  of  accounts  was  devised  for  the  purpose 
of  checking  the  various  officers  who  handled  the  canal 
funds  and  of  preventing  any  misappropriation.  As  stated 
above  all  payments  by  the  acting  canal  commissioners  were 
made  by  checks,  which  were  redeemed  by  the  banks  and 
treasurer,  and  returned  by  them  to  the  fund  commissioners. 
No  money  could  be  drawn  except  by  check,  and  these  served 
as  vouchers  for  all  payments  made.  At  the  end  of  each 
quarter  the  accounts  of  each  acting  commissioner  were 
examined  by  the  canal  board,  and,  if  correct,  were  recorded 
in  the  office  of  this  board  (later  the  board  of  public  works). 
In  1840  each  acting  commissioner  was  required  to  file  his 


"In  1830  depositions  were  made  before  a  select  committee  of  the 
House  of  Representatives  stating  that  the  auditor,  Ralph  Osborn,  had 
been  "connected  for  many  years  with  a  large  mercantile  establishment", 
and  was  then  also  "extensively  engaged  in  a  canal  contract,  on  the  Deep 
Cut";  and  that  he  had  given  only  a  small  part  of  his  time  to  the  duties 
of  his  office.  Ho.  J ' .,  1830,  pp.  4/5,  ff.  He  was  a  most  inefficient  auditor, 
and  his  reports  are  among  the  poorest  of  this  early  period.  Though  he 
had  been  auditor  since  1816,  he  was  not  re-e'ected  after  1833.  This  is  the 
only  evidence  I  have  found,  in  this  period,  of  official  graft. 


150  FINANCIAL  HISTORY  OF  OHIO  [150 

accounts  also  with  the  auditor  of  state,  by  whom  the  orig- 
inal papers  and  vouchers  were  kept.21 

In  the  system  as  thus  described,  there  were  several 
weak  points.  In  the  first  place  the  whole  system  of  raising 
and  disbursing  the  canal  funds  went  on  outside  of  the 
auditor's  and  treasurer's  offices,  who  were  the  financial 
officers  of  the  state.  Two  entirely  independent  boards 
were  created  which,  while  they  may  have  acted  as  checks 
upon  each  other,  were  jointly  accountable  to  no  superior 
authority.  As  a  result  of  this  fact  unbounded  confusion 
resulted  in  the  accounts  of  the  state.  Taxes  levied  for  the 
canal  fund  would  be  paid  by  the  county  treasurer  to  the 
fund  commissioners  and  not  be  credited  on  the  books  of 
the  auditor.  Money  was  borrowed  by  the  commissioners, 
and  no  record  of  the  bonds  issued  appeared  in  the  auditor's 
office.  Drafts  issued  by  the  auditor  on  the  treasurer  were 
often  redeemed  by  the  fund  commissioners.  It  is  evident 
that  under  such  a  system  of  cross  purposes,  no  accurate 
accounts  and  strictness  of  accountability  could  be  main- 
tained. 

Another  weakness  lay  in  the  fact  that  the  accounts  of 
each  acting  commissioner  were  examined  by  the  canal 
board,  of  whom  he  was  one  of  the  members,  and  he  then 
became  in  turn  a  judge  in  settling  the  accounts  of  his 
colleagues.22  Such  a  reciprocity  of  accountability  seems 
to  have  worked  little  if  any  injury,  as  it  was  in  the  hands 
of  uniformly  honest  men ;  but  it  certainly  opened  the  door 
to  evil  and  was  incompatible  with  any  system  of  strict  ac- 
countability. Further,  there  did  not  seem  to  be  any 
adequate  check  upon  the  engineers  or  superintendents, 
who  certified  to  the  work  of  contractors  and  upon  whose 
certification  checks  were  drawn  for  construction  work  and 
later  repairs.  It  is  clear  that  collusion  between  an  engineer 


MAct  of  March  23,  1840.  The  committee  appointed  to  examine  the 
books  of  the  board  of  public  works  reported  in  1845,  that  "after  some 
inquiry,  we  cannot  find  that  the  law  was  ever  complied  with".  Exec.  Doc., 
1845,  II,  12. 

"Aud.  rep.  Exec.  Doc.,  1839,  I,  35. 


151]  FINANCIAL  ADMINISTRATION  151 

and  contractor  might,  under  such  a  system,  result  in  graft 
to  a  considerable  amount,  unless  it  were  checked  by  the 
watchfulness  of  an  alert  acting  commissioner.  The  whole 
matter  was  summed  up  as  follows  by  the  auditor  in  1843 :20 

The  whole  is  one  vast  running  account,  and  presents  the  singular  anomaly 
of  one  set  of  agents  to  provide  means;  a  second  to  pay  them  out,  upon 
absolute  checks ;  and  a  third  to  appropriate  the  division  and  settle  the 
disbursements. 

It  must  not  be  supposed  that  this  system  passed  with- 
out criticism  from  contemporary  observers.  In  1835  a 
committee  appointed  to  examine  the  books  of  the  auditor 
and  treasurer  for  the  last  three  years  and  count  the 
money  in  the  treasury,  reported  as  follows,24  without 
however,  suggesting  any  remedies  for  the  evils : 

The  result  of  their  examinations  has  been  a  conviction  in  the  minds  of 
the  committee  that  the  present  organization  of  our  treasury  department 
does  not  afford  the  necessary  securities — i.  For  the  actual  payment  into 
the  treasury  of  moneys  accruing  from  taxes  and  the  various  other  sources 
of  revenue  provided  by  law.  2.  Against  the  discharge  of  those  indebted 
to  the  revenue  from  their  liabilities,  in  cases  when  the  money  due  does 
not  actually  reach  the  treasury.  3.  Against  the  payment  of  demands 
for  which  the  state  is  not  liable.  4.  Against  the  allowance  of  unreason- 
able or  improper  accounts.  5.  Against  the  payment  of  demands  for  which 
there  is  no  legal  appropriation,  or  an  appropriation  not  sufficient  to  meet 
the  demands.  6.  Against  the  misapplication  of  funds  set  apart  for 
particular  purposes.  7.  Against  the  payment  a  second  time  of  a  demand 
once  paid. 

A  similar  indictment  was  brought  the  next  year  by  a 
committee  to  examine  the  books  and  vouchers  of  the  canal 

commissioners.25 

/ 

Our  examinations  [they  wrote]  have  been  laborious  and  unsatisfactory  in 
the  investigation  of  every  branch  of  the  subject.  .  .  .  We  have  met 
with  obstacles  altogether  unexpected,  in  consequence  of  the  manner  in 
which  the  books  and  vouchers  of  the  fund  commissioners,  the  canal  com- 
missioners, the  auditor  of  state,  and  the  treasurer  of  state  have  been 
classed  and  kept In  addition  to  the  irregularity  and  confu- 
sion of  those  accounts,  we  were  met  by  the  Manhattan  Company  of  New 
York,  with  a  refusal  to  furnish  us  with  the  information  indispensably 

"Aud.  rep.,  Dec.  11,  1843. 

**//o.  /.,  1835,  p.  247.     The  resolution  under  which  it  was  appointed 
bore  the  date  of  March  3,  1834. 

"Rep.,  Dec.  7,  1836.    Exec.  Doc.,  1836,  I,  3-4. 


152  FINANCIAL  HISTORY  OF  OHIO  [152 

necessary,  on  its  part,  to  a  statement  of  the  accounts  with  that  institution. 

These  criticisms  and  suggested  reforms  drew  forth 
from  the  auditor  a  violent  objection  to  "undigested  plans" 
that  would  "revolutionize  a  system  which  has  grown  into 
established  forms  and  modes,  difficult  to  remodel  or  change 
without  repealing  numerous  laws.  .  .  Many  improve- 
ments plausible  in  theory,  are  difficult  in  practice-'.26  The 
evils  disclosed  were,  however,  too  serious  to  be  overlooked 
or  to  have  their  reform  blocked  by  bureaucratic  opposition. 
The  subject  of  reform  became  a  political  issue,  one  party 
favoring  the  centralization  of  powers  and  functions  under 
the  supervision  of  the  auditor,  and  the  other  the  con- 
tinuance of  the  present  system.  The  reformers  won  the 
first  battle  and  in  1836  abolished  the  board  of  canal  com- 
missioners, establishing  in  their  place  a  board  of  public 
works  of  six  members  under  the  direct  supervision  of  the 
auditor.  Two  years  later,  however,  the  other  side  were 
returned  to  power  and  they  signalized  their  victory  by  re- 
pealing most  of  the  legislation  of  the  two  years'  previous. 
The  board  of  public  works  was  removed  and  the  old  board 
of  canal  commissioners  reinstated. 

But  the  victory  was  only  a  short-lived  one  and  the 
next  year,  by  act  of  March  5,  1839,  the  board  of  public 
works  was  put  in  office  again.27  Another  act  was  soon 
passed,  entitled  "an  act  to  regulate  the  receipt  and  dis- 
bursement of  the  canal  fund",  directed  against  the  loose 
methods  which  had  characterized  the  old  system.  The 
board  of  public  wrorks  was  established  in  the  auditor's 
office  and  under  his  supervision.  All  monej^s  for  canals  or 
public  improvements  were  to  be  paid  into  the  state  treasury 
and  kept  as  a  separate  fund,  to  be  disbursed  by  the 
treasurer  of  state.  The  auditor,  finally,  was  required  to 
make  a  full  annual  report  of  receipts  and  disbursements. 

MAud.  rep.,  1837,  p.  18. 

2'The  number  of  members  was  reduced  to  five,  but  they  were  authorized 
to  appoint  four  acting  commissioners.  By  the  act  of  March  6,  1845,  the 
membership  was  reduced  to  three,  a  president  and  two  acting  commis- 
sioners. This  act  also  provided  for  sharper  control  and  supervision  of 
expenditures. 


153]  FINANCIAL  ADMINISTRATION  153 

The  control  of  the  canal  funds  and  of  the  accounts  was 
now  concentrated  and  placed  in  the  hands  of  the  auditor 
as  the  responsible  state  financial  officer,  thus  removing 
the  dispersion  of  authority  and  responsibility  that  existed 
under  the  former  system. 

The  unsatisfactory  records  hitherto  kept  of  the  public 
debt  and  related  matters  were  aimed  at  by  an  earlier  act,28 
which  ordered  the  canal  fund  commissioners  to  keep  a  list 
of  the  public  works  with  all  expenditures  thereon,  and  to 
report  to  the  auditor  all  loans  and  debts  contracted;  the 
auditor,  on  his  part,  was  required  to  record  in  a  separate 
book  all  loans,  debt,  appropriations,  subscriptions  to  stock, 
etc.  From  this  time  on  permanent  and  presumably  ac- 
curate records  were  kept  of  essential  data,  that  previously 
were  almost  unobtainable.  In  1844  the  mode  of  settling 
accounts  between  the  different  departments  connected  with 
the  public  works  was  regulated  in  considerable  detail.  The 
superintendents  were  to  render  quarterly  statements  to 
and  make  quarterly  settlements  with  the  resident  engineers, 
who  were  to  certify  these  to  the  acting  commissioners  of  the 
board  of  public  works.  The  latter  were  to  settle  on  May 
15  and  November  15  with  the  acting  commissioner  of  the 
canal  fund.  All  checks  of  the  acting  commissioners  were 
to  be  paid  by  the  treasurer — not,  as  formerly,  by  the  canal 
fund  commissioners, — and  were  to  be  examined  by  the 
auditor.  The  board  of  public  works  was  finally  required 
to  make  out  an  annual  report  and  to  file  it  with  the 
auditor.29  Two  years  later  the  duties  of  the  board  of  public 
works,  of  the  canal  fund  commissioners,  and  of  the  auditor 
and  treasurer  of  state,  in  regard  to  the  receipt  and  dis- 
bursement of  the  canal  fund,  and  the  receipt  of  taxes,  were 
still  more  carefully  defined  and  regulated.  The  original 
system,  however,  remained  in  practice  until  the  thorough- 
going reforms  of  a  decade  later. 


"Act  of  Feb.  25,  1839. 
"Act  of  March  13,  1844.    42  O.  L.  74. 


154  FINANCIAL  HISTORY  OF  OHIO  [154 


THE  REFORMS  OF  1856  AND  1857. 

The  loose  methods  which  had  so  long  prevailed  and 
the  lack  of  strict  accountability  on  the  part  of  the  various 
officials  at  last  opened  the  door  to  graft  and  corruption. 
The  high  prices  and  speculation  which  prevailed  between 
1833  and  1837  had  led  to  extravagance  and  worse  in  the 
construction  of  the  canals.  The  necessity  of  securing 
private  charters  for  banks  and  railroads,  and  the  methods 
incident  thereto,  had  accustomed  many  persons  to  regard 
the  state  as  an  instrument  for  their  private  gain.  And 
finally  the  introduction  of  the  spoils  system  in  politics 
must  probably  be  held  in  large  part  responsible  for  the 
decay  in  responsibility  and  integrity  which  took  place  in 
the  character  of  public  men,  in  Ohio  as  elsewhere. 

It  is  imposisble  to  say  just  when  lack  of  responsibility 
led  to  misapplication  of  public  funds,  or  speculation  be- 
came peculation,  but  it  may  certainly  be  placed  as  early 
as  1838.  The  report  of  the  examining  committee  in  1845 
showed  that  from  about  that  date  down  to  the  time  of 
their  report,  corruption,  fraud,  and  graft  were  present  on 
the  canals,  in  the  letting  of  contracts  to  high  bidders,  in 
collusive  bids,  in  contracts  by  state  officials,  etc.30  Debts 
due  the  state  were  uncollected,  overpayments  were  made 
to  favored  contractors,  the  contingent  fund  at  the  disposal 
of  the  acting  canal  commissioners  was  loosely  used,31  and 
other  corrupt  practices  were  introduced.  The  public  funds 
were  deposited  in  favored  banks;  originally  introduced  to 


""Rep.  of  Com.  to  examine  books,  etc.,  of  B.  P.  W.  Exec.  Doc.,  1845, 
II,  1-573- 

'"In  1840  an  act  forbade  any  acting  member  of  the  board  of  public 
works  to  have  in  his  hands,  unaccounted  for,  more  than  a  certain  amount, 
varying  under  different  amendments,  from  $5000  to  $20,000 ;  but  by  an 
"outrageous  construction"  of  the  law  it  was  held  that  the  commissioners 
must  have  that  amount  on  hand,  which  they  seem  thereafter  to  have  used 
for  their  persona'  advantage.  Rep.,  1845,  p.  10. 


155]  FINANCIAL  ADMINISTRATION  155 

facilitate  payments  at  distant  points,  the  system  seems  to 
have  been  abused.32 

So  flagrant  indeed  had  the  corruption  become  by  1845 
that  an  act  of  that  year  provided  for  the  appointment  of 
commissioners  to  investigate  the  financial  administration 
of  the  canals.  The  publication  of  .their  report33  called 
forth  several  acts  designed  to  guard  more  carefully  the  use 
and  disbursements  of  the  public  funds;  among  them  was 
an  act  to  punish  the  embezzlement  of  public  moneys,  which 
was  defined  as  using,  loaning,  or  investing  such  money 
with  a  view  to  personal  gain.34  It  was  punished  very 
lightly  by  a  fine  of  from  $50  to  $500,  and  the  loss  of  office. 
Contracts  for  personal  advantage  were  forbidden,  but  no 
penalty  prescribed  for  making  them.  Evidently  the  law- 
makers did  not  regard  these  as  very  heinous  offenses. 

Another  act  of  the  same  year,  in  itself  apparently 
desirable  and  advantageous,  had  disastrous  consequences 
when  later  dishonest  officials  took  advantage  of  the  op- 
portunities it  offered  to  get  control  of  the  public  funds. 
This  was  designed  to  secure  the  funds  needed  by  the  com- 
missioners of  the  sinking  fund  for  the  payment  of  the  in- 
terest on  the  public  debt,  which  was  due  on  January  1  of 
each  year.  As  the  state  levies  were  not  due  from  the  county 
treasurers  until  February,  it  had  been  necessary  either  to 
maintain  a  reserve  from  the  previous  year  or  to  borrow  in 
anticipation  of  these  taxes.  Accordingly  this  act  provided 
"that,  for  the  purpose  of  aiding  in  the  payment  of  interest 
on  the  state  debt,  the  several  county  treasurers  of  this 
state  shall,  on  or  before  the  20th  December,  annually, 
transmit  or  pay  over  to  the  state  treasurer,  a  sum  not 
exceeding  the  amount  assessed  on  the  duplicate  of  such 
county  for  state  purposes".  Under  this  law  it  was  the 
practice  of  the  state  treasurers  to  send  out  circulars  in 

"In  1838  the  auditor  urged  placing  "the  public  funds,  the  money  of 
the  people,  in  the  depository  designed  for  it  at  the  organization  of  the 
government,  where  it  may  remain  protected  and  secure  from  the  possi- 
bility of  injury  or  loss".  Legist.  Doc.,  1838-9,  I,  17. 

"Exec.  Doc.,  1845,  II,  1-573. 

"Act  of  March  2,  1846. 


156  FINANCIAL  HISTORY  OF  OHIO  [156 

October,  urging  the  payment  of  these  taxes  in  advance  of 
the  time  of  regular  settlement,  irrespective  of  the  fact 
whether  the  sinking  fund  needed  the  money  or  not.  As 
such  payments  did  not  come  to  the  official  knowledge  of  the 
auditor  until  the  time  of  regular  settlement,  the  treasurers 
were  thus  able  to  get  hold  of  considerable  funds  and  use 
them  without  any  official  check.35  For  instance,  during 
the  months  of  November  and  December,  1852,  payments  of 
money  were  made  to  the  state  treasurer  by  the  county 
treasurers  for  over  $750,000,  of  which  the  auditor  had  no 
official  information  until  February.30 

Another  evil  practice  had  grown  up,  and  was  publicly 
known  to  exist,  with  but  little  comment,  and  without  con- 
demnation, and  without  law  effectually  to  prevent  it,  which 
had  even  worse  consequences  in  its  train,  because  it  was 
so  far-reaching.37  The  treasurers  of  state,  and  also  those 
of  cities,  counties,  and  townships,  were  depositing  money 
in  their  official  keeping  with  various  banks  and  bankers, 
upon  which  they  received  interest  as  a  perquisite  of  their 
offices,  and  for  which  of  course  they  never  accounted  to  the 
state  or  other  authorities.  These  depositories  in  the  mean- 
time used  the  funds  thus  deposited  for  their  own  purposes, 
and  stipulated  to  afford  every  facility  to  the  treasurers 
for  concealment.  Thus  Treasurer  Joseph  Whitehill,  who 
was  in  office  from  1835  to  March,  1847,  received  interest 
on  his  deposits.  A.  A.  Bliss  was  treasurer  of  state  from 
1847  to  January  12, 1852,  and  received  interest  on  deposits 
of  state  money  at  the  rate  of  4  per  cent,  per  annum  from 
various  banks,  never  accounting  to  the  state  for  any  por- 
tion of  it.  His  successor,  John  G.  Breslin,  held  the  office 
from  1852  to  January  14,  1856,  and  used  the  state  funds 
freely  for  private  speculation  during  this  period.  W.  EL 
Gibson,  who  followed  Breslin  and  remained  in  office  until 


"Aud.  rep.  Exec.  Doc.,  1857,  I,  401. 

"Aud.   rep.,  1855. 

"An  account  of  these  transactions  is  given  in  the  Report  of  the  Inves- 
tigating Committee  ...  of  the  Defalcation,  etc.  Published  as  separate 
volume  of  Exec.  Doc.,  1858. 


157]  FINANCIAL  ADMINISTRATION  157 

June  13,  1857,  followed  the  same  methods,  even  hypothe- 
cating cancelled  domestic  state  bonds  to  raise  funds. 

It  is  in  vain  to  deny  [wrote  the  investigating  committee  of  1858"] 
that  public  opinion  had,  for  years,  permitted  and  sanctioned  this  use  of 
public  funds  by  state  treasurers  and  other  receivers,  for  their  own  benefit 
and  advantage.  The  law39  which  prohibited  this  perversion  of  the  public 
money  to  the  personal  uses  of  the  treasurer  and  his  favorites,  existed  only 
as  a  dead  letter.  Public  opinion  had  failed  to  demand  that  it  be  put  in 
operation  and  hence  the  courts  and  officers  of  the  law  made  no  attempt 
to  enforce  it. 

As  an  evidence  of  this  attitude  the  single  fact  may  be  cited 
that  the  commissioners  of  the  sinking  fund,  in  each  of 
their  semi-annual  reports  from  December,  1852,  to  January, 
1856,  called  attention  to  the  practice  of  the  state  treasurer 
in  loaning  public  money  to  the  banks.  But  during  this 
very  period  the  canal  fund  commissioners  were  making 
large  loans  from  the  sinking  fund  to  railroads  and  insur- 
ance companies.40 

These  evil  practices  would  probably  have  been  brought 
to  light  and  stopped  if  a  better  system  of  accountability 
had  existed.  No  provision  was  made  by  law  for  a  full  and 
perfect  adjustment  of  all  accounts  in  the  treasurer's  and 
auditor's  offices.  The  auditor  had  no  official  knowledge 
of  the  settlement  of  one  treasurer  with  another,  as  the 
accounts  in  his  office  were  simply  with  the  "treasurer  of 
state",  nor  were  the  accounts  of  the  treasurer's  office  veri- 
fied until  the  close  of  the  fiscal  year,  November  15. 

As  a  necessary  consequence  of  a*  system  that  is  so  inherently  defective 
[wrote  the  auditor  in  1853"]  the  accounts  of  the  treasurer  of  state  are 
mainly  adjusted  by  himself  alone,  and  on  retiring  from  office,  he  settles 
not  with  the  proper  auditing  officer,  but  with  his  successor. 

These  abuses  were  a  cause  of  serious  and  frequent 
complaint  by  the  people,  and  were  made  political  issues  in 
the  campaign  of  November,  1851.42  In  1852  an  effort  was 
made  to  procure  the  passage  of  laws  to  secure  frequent 
personal  inspection  of  the  treasury  by  proper  officers. 

"Rep,  P.  33- 

^Act  of  March  2,  1846. 

"Rep.,  p.  32. 

"Aud.  rep.,  Feb.  12,  1853. 

**Aud.  rep.,  Feb.  12,  1853. 


158  FINANCIAL  HISTORY  OF  OHIO  [158 

Although  the  effort  was  persistent,  it  failed  of  success,  because  it  would 
have  been  at  once  a  death  blow  to  all  further  attempts  at  plunder.43 

An  ineffective  act  was  passed  the  following  year,44  pro- 
viding for  the  publication  of  an  accurate  and  detailed 
statement  of  the  receipts  and  expenditures  of  the  public 
revenues.  Rvery  officer  of  the  state  who  was  charged  with 
the  receipt  or  disbursement  of  public  money,  was  required 
to  make  a  detailed  report,  which  the  auditor  was  to  classify 
and  arrange  under  proper  heads,  "so  as  to  present  in  detail 
an  accurate  account".  While  it  was  eminently  desirable 
to  have  this  information  collected  and  presented  in  easily 
intelligible  form,  this  act  failed — probably  by  design — to 
go  to  the  root  of  the  evil.  Part  of  the  blame  must  cer- 
tainly be  placed  upon  the  legislature  for  the  bad  state  of 
affairs,  for  they  refused  or  neglected  to  apply  the  proper 
remedies  when  their  attention  was  called  to  the  evils,  as 
it  was  repeatedly  by  the  reports  of  the  auditor  and  other 
officials,  and  of  examining  committees  of  the  legislature 
itself. 

The  constitution  of  1851  was  somewhat  more  specific 
than  the  former  constitution  on  the  subject  of  the  dis- 
bursement of  the  public  funds  and  a  proper  accounting 
therefor.  Specific  appropriations  were  provided  for  and 
administrative  discretion  in  the  use  of  funds  thereby 
diminished : 

No  money  shall  be  drawn  from  the  treasury,  except  in  pursuance  of  a 
specific  appropriation,  made  by  law ;  and  no  appropriation  shall  be  made 
for  a  longer  period  than  two  years.45 

Another  section  provided  that 

an  accurate  and  detailed  statement  of  the  receipts  and  expenditures  of 
the  public  money,  the  several  amounts  paid,  to  whom,  and  on  what 
account,  shall,  from  time  to  time,  be  published,  as  prescribed  by  law.** 

It  also  required  that  the  treasurer  should  be  elected  for 
two  years,  and  the  auditor  for  four  years.47 

**Rep.   of  Investigating  Com.,  p.  37. 
"Act  of  March  14,  1853. 
^Art.  II,  sec.  22. 

**Art.  XIV,  sec.  3.    The  act  of  March  14,  1853,  simply  gave  legislative 
sanction  to  this  provision. 
"Art.  Ill,  sec.  2. 


159]  FINANCIAL  ADMINISTRATION  159 

The  provisions  in  the  constitution  afforded  no  remedy 
for  existing  abuses,  and  these  at  last  became  so  glaring 
that  the  legislature  was  forced  to  take  action.  They  were 
now  confined  not  only  to  the  improper  use  of  state  funds, 
or  the  receipt  of  interest  from  depositories  of  such  moneys ; 
but  graft  and  corruption  wrere  allegd  in  connection  with 
the  construction  of  several  new  state  institutions  that  were 
being  erected,  and  whose  cost  was  running  far  beyond  the 
original  estimates.  Within  a  week  three  acts  were  passed 
directed  against  the  various  evils  described.  One  provided 
for  the  appointment  of  three  investigating  committees  to 
investigate  (1)  the  acts  of  all  public  agents  who  have  or 
had  custody  or  disbursement  of  public  moneys;  (2)  the 
acts  of  the  board  of  public  works;  (3)  all  the  transactions 
and  expenditures  about  the  new  state  house,  the  peniten- 
tiary, the  three  lunatic  asylums,  the  blind,  and  the  deaf 
and  dumb  asylums.48  To  meet  the  expenses  of  these  in- 
vestigations the  sum  of  $1500  was  appropriated.  This  was 
designed  to  get  at  the  facts. 

A  second  act  provided  for  the  adequate  punishment 
of  wrongdoers,49  and  repealed  the  ineffective  law  of  March 
2,  1846,  on  this  subject.  Its  announced  purpose  was  to 
punish  the  embezzlement  and  unlawful  use  of  public 
moneys.  Embezzlement  was  defined  as  conversion  of 
money  to  a  person's  own  use  or  that  of  a  corporation  or 
company  in  which  lie  was  interested,  or  making  way  with 
it,  and  for  this  crime  the  penalty  was  made  the  same  as  for 
stealing.  The  loan  of  public  moneys  was  forbidden,  as 
was  also  depositing  public  funds  under  an  agreement  to 
receive  interest  or  bonus ;  for  both  of  these  the  penalty  was 
a  fine  of  an  equal  amount.  Still  another  act  prescribed  in 
detail  the  duties  of  the  auditor  and  treasurer  of  state 
relative  to  the  receipt,  safekeeping,  and  disbursement  of 
public  moneys,  and  accounting  therefor.50  The  auditor 
was  made  the  principal  accounting  officer  of  the  treasury 


"Act  of  April  17,  1856. 
"Act  of  April  10,  1856. 
"Act  of  April  8,  1856.  53  O.  L.  222. 


160  FINANCIAL  HISTORY  OF  OHIO  [160 

department.  All  payments  into  the  treasury  must  be  upon 
his  certificate,  to  which  must  be  attached  a  pertinent 
description  of  the  liability  for  which  payment  was  made, 
given  by  the  person  making  the  payment;  and  no  money 
was  to  be  paid  out  of  the  treasury  except  upon  the  auditor's 
warrant.  No  money,  futhermore,  could  be  paid  out  of  the 
treasury  unless  it  should  have  been  appropriated  by  law 
for  that  purpose. 

The  auditor  was  ordered  to  examine,  between  Septem- 
ber 1  and  November  1  of  every  year,  and  at  such  other 
times  as  he  should  deem  necessary,  the  books,  accounts, 
etc.,  of  the  treasurer,  and  to  count  the  money,  and  to  ascer- 
tain the  balance  deposited  elsewhere,  and  the  conditions 
upon  which  such  deposits  were  made,  and  whether  any 
consideration  by  way  of  interest  or  otherwise  was  received 
or  expected  by  the  treasurer.  This  section  of  the  act  was 
aimed  at  the  corrupt  alliances  already  described  between 
the  treasurer  and  certain  banks.  Another  section  (sec.  12) 
was  designed  to  protect  the  state  against  loss  from  the 
deposit  of  public  funds  in  state  banks: 

No  money  belonging  or  due  to  the  state  shall  be  deposited  .  .  .  else- 
where than  in  the  treasury  office  at  Co'umbus,  without  taking,  in  every 
instance,  security  therefore,  either  by  the  pledge  of  United  States  or  Ohio 
state  stocks  .  .  .  or  by  the  bonds  of  individual  residents  of  the  state 
of  undoubted  pecuniary  responsibility,  all  which  securities  .  .  .  shall 
be  deposited  in  the  office  of  the  auditor  ...  as  collateral  security. 

As  a  result  of  the  reports  of  various  investigating 
committees  another  act  was  passed  in  the  following  session 
providing  that  the  auditor,  treasurer,  secretary  of  state, 
commissioners  of  the  sinking  fund,  attorney  general,  state 
librarian,  directors  of  the  Ohio  penitentiary,  the  trustees  of 
benevolent  institutions,  and  board  of  public  works  should 
keep  accurate  and  distinct  accounts.51  And  that  the 
treasurer's  monthly  statement  should  show  the  funds  in 
the  treasury,  the  names  of  depositories  of  public  funds,  and 
the  amount  in  each.  The  governor  was  also  required  once 
in  three  months  to  appoint  an  examiner  of  the  treasury 
who  should  make  his  examination  without  previous  notice. 

"Act  of  April  16,  1857. 


161]  FINANCIAL  ADMINISTRATION  161 

These  acts  and  other  legislation  of  the  sessions  of  1856  and 
1857  attempted  to  erect  effectual  guards  for  the  security 
of  the  treasury.  They  made  the  auditor  of  state  the  chief 
accounting  officer  of  the  treasury,  and  required  all  pay- 
ments as  well  as  all  disbursements  to  be  made  upon  his 
warrant ;  it  directed  the  commissioners  of  the  sinking  fund 
to  withdraw  from  the  treasury,  from  time  to  time,  the 
moneys  belonging  to  that  fund ;  it  provided  for  the  appoint- 
ment of  depositaries  subordinate  to  the  treasury,  and  re- 
quired of  them  ample  securities  for  all  moneys  deposited 
with  them;  and  introduced  other  important  checks  upon 
the  action  of  the  treasurer.52 

THE   DEFALCATION   OF   1857. 

It  seemed  now  as  though  the  door  had  been  effectually 
closed  to  further  evils,  but  the  harvest  from  past  abuses 
had  not  yet  been  reaped.  In  June,  1857,  when  the  com- 
missioners of  the  sinking  fund  asked  for  money  to  remit 
to  New  York  for  the  payment  of  the  July  interest,  the  state 
treasurer,  William  H.  Gibson,  admitted  the  bankruptcy  of 
the  treasury.  There  was  only  $170.34  in  actual  cash  at  the 
time,53  and  the  treasurer  defaulted  for  $580,313.  Upon 
investigation  it  was  discovered  that  the  shortage  in  the 
treasury  had  its  beginning  at  least  a  decade  before.54  Mr. 
Bliss,  the  treasurer  from  1847  to  1852,  owed  to  the  state  at 
the  expiration  of  his  term  .of  office  $65,000,  in  addition  to 
other  deficits  which  were  paid  up  by  his  sureties.55  When 
John  G.  Breslin  became  treasurer  he  took  over  the  office 
without  full  official  settlement,  thus  assuming  the  shortage 
of  his  predecessor.  During  Mr.  Breslin's  administration 
the  treasury  department  was  run  without  any  system,  ac- 

MGov.  Mess.,  Jan.  4,  1858.  Exec.  Doc.,  1857,  I,  363. 

"Aud.  rep.,  Exec.  Doc.,  1857,  I,  396. 

"Report  of  the  Investigating  Committee  appointed  to  enquire  into  the 
causes  of  the  defalcation  in  the  state  treasury  and  other  matters  named 
in  the  act  of  the  General  Assembly  of  the  State  of  Ohio,  passed  April  12, 
1858.  Published  as  a  separate  volume  with  the  Executive  Documents 
{Columbus,  Ohio,  1858). 

"Rep.,  p.  13. 


162  FINANCIAL  HISTORY  OF  OHIO  [162 

counts  were  balanced  only  once  a  year,  and  various  illegal 
transactions  were  carried  on.  On  the  expiration  of  his 
term  the  books  showed  a  balance  due  his  successor  of  $855,- 
853,  of  which  he  actually  paid  over  $353,865,  leaving  a 
deficit  in  the  treasury  of  $501,988,  which  his  successor 
should  have  had  but  did  not.  In  addition  to  this  defalca- 
tion, $204,687  had  been  deposited  with  banks  which  had 
failed,  and  this  also  was  lost.56  Breslin's  successor  was 
Gibson,  his  own  brother-in-law,  who  was  treasurer  from 
1856  to  1857.  When  he  took  over  the  office,  he  concealed 
his  predecessor's  deficit,  and  continued  the  same  policy  of 
speculation  and  deception.57  He  even  abstracted  large 
sums  in  securities  held  in  trust,  upon  which  the  state's 
guarantee  for  the  redemption  of  considerable  bank  circula- 
tion was  based,  and  used  them  in  private  speculation.58 
These  transactions  were  made  possible  by  the  secrecy  with 
which  all  the  operations  of  the  treasury  department  were 
conducted,  and  by  the  fact  that  the  treasurers  made  settle- 
ment with  each  other  and  not  with  the  auditor  As  stated 
above,  the  auditor  had  access  to  the  books  of  the 
treasurer  only  at  the  end  of  each  fiscal  year,  and  the  way 
in  which  he  was  deceived  year  after  year  is  well  illustrated 
by  the  events  of  November,  1856.  When  the  auditor  made 
his  annual  examination  of  the  treasurer's  office  at  that 
time,  he  found  the  correct  amount  of  cash  balance  on  hand, 
which  the  books  showed  that  the  treasurer  should  have, 
namely  $350,951  in  currency,  drafts,  etc.  But  it  developed 
later  that  the  treasurer  had  received  collections  from 
county  treasurers  for  taxes  in  advance  of  the  regular 
period  of  settlement,  which  were  consequently  not  charged 
against  him  on  the  auditor's  books,  and  that  these  with 


"Rep.,  pp.  29-86. 

"Rep.,  pp.  77,  113. 

MRep.  Comptroller,  Nov.  15,  1862.  Exec.  Doc.,  1862,  I,  408.  Gibson 
was  an  easy-going,  genial  man,  who  was  imposed  upon  by  many  with 
whom  he  had  business  dealings.  The  treasury  was  undoubtedly  bankrupt 
when  he  took  charge  of  it,  as  a  result  of  Breslin's  defalcation,  but  he 
concealed  this  fact  by  false  statements  and  reprehensible  contrivances,, 
after  he  became  cognizant  of  it,  and  must  bear  his  full  share  of  the  blame. 


163]  FINANCIAL  ADMINISTRATION  163 

loans  from  the  banks  made  up  the  actual  deficit  which  even 
then  amounted  to  over  $500,000.  The  auditor  later  tried 
to  excuse  himself  for  his  lack  of  discernment  and  to  place 
some  of  the  blame  on  the  legislature,  by  saying  that,  since 
there  was  a  standing  Committee  of  Finance  of  the  general 
assembly,  whose  duty  it  was  to  audit  the  books  of  both 
treasurer  and  auditor,  his  examination  was  "not  as  critical 
and  thorough  as  it  would  otherwise  have  been."59 

It  remains  to  notice  the  share,  important  and  corrupt- 
ing, which  the  banks  had  in  these  disgraceful  proceedings. 
The  power  which  the  treasurer — not  of  state  only  but  also 
of  the  local  units  of  government — had  of  depositing  the 
public  moneys  in  banks  of  his  own  selection,  made  him 
an  extremely  important  factor  in  financial  circles  and  one 
whose  favor  it  was  worth  while  to  court.  The  sureties  on 
his  bond  were  bank  presidents,  who  lent  their  endorsements 
in  order  to  obtain  their  share  of  the  public  deposits. 
Political  and  social  influences  of  a  highly  interesting  char- 
acter were  also  brought  to  bear  upon  the  treasurer  to  in- 
fluence his  choice  of  depositaries.60  Although  the  banks 
paid  the  treasurer  personally  interest  at  four  per  cent,  on 
these  deposits,  they  certainly  made  as  much  more  for  them- 
selves, as  the  legal  rate  of  interest  in  Ohio  at  this  time  was 
10  per  cent.  But  having  made  a  guilty  bargain  with  the 
treasurers  for  the  use  of  the  public  deposits,  the  banks 
later  became  participes  criminis  in  conniving  with  them  to 
conceal  their  defalcations.  In  the  case  both  of  Breslin  and 
Gibson,  that  is  from  1852  to  1857,  they  gave  them  false 
credits  when  the  auditor  and  the  auditing  committee  of 
the  legislature  made  Jtheir  annual  examination  of  the 
treasury.  The  balances  thus  credited  to  the  treasurer 
would  be  counted  as  cash  on  hand,  when  really  there  was 
nothing.  A  careful  audit  might  have  revealed  this  decep- 
tion earlier,  but  that  was  just  what  was  lacking.  After  the 
defalcation  was  discovered  a  proposition  was  made  to  the 


*Aud.  rep.  Exec.  Doc.,  1857,  I,  395. 

"See  Rep.  of  Investigating  Com.,  1858,  p.  37. 


164  FINANCIAL  HISTORY  OF  OHIO  [164 

general  assembly  in  1858  by  Breslin  and  Gibson  and  their 
sureties,  the  bank  presidents,  for  a  compromise  of  their  re- 
spective liabilities  to  the  state.  An  effort  was  made  to 
relieve  the  sureties  from  civil  suit  and  the  principals  from 
criminal  prosecution,  by  an  offer  to  pay  the  state  $250,000.61 
Needless  to  say,  this  astounding  offer  was  not  accepted. 

The  story  of  the  trial  and  subsequent  treatment  of 
these  men  is  interesting  as  showing  how  easy  it  is  for 
offenders  against  the  state  to  escape  punishment.62  Upon 
the  defalcation  of  Gibson,  Breslin  fled  to  Canada  and 
remained  there  while  the  criminal  suit  against  him  was 
pending.  This  suit  was  dismissed  in  1864,  as  the  legisla- 
ture, by  act  of  March  21,  1863,  repealed  the  statute  under 
which  he  was  being  sued,  so  that  the  prosecution  became 
unlawful.  Assets  in  nominal  value  of  $400,000  were  turned 
over  by  the  treasury  commission  from  Breslin  to  the  at- 
torney general  for  collection.  They  represented  various 
wild  speculations,  largely  in  real  estate,  and  were  scattered 
through  many  states;  the  treasury  commission  estimated 
their  real  value  at  about  $10,000,  but  considerably  more 
than  that  was  collected,  as  the  item  "assets  of  John  G. 
Breslin"  continued  to  figure  in  the  receipts  of  the  general 
revenue  fund  for  some  years,  in  small  driblets  of  $2000  to 
$5000  a  year. 

Gibson  was  tried  and  convicted  in  1857,  but  the  ver- 
dict was  set  aside.  The  case  against  him  was  continued 
until  the  November  term,  1861,  when  he  organized  an  Ohio 
regiment  and  entered  the  war  with  the  rank  of  colonel. 
During  the  war  he  conducted  himself  with  great  gallantry, 
emerging  from  it  with  the  rank  of  general;  while  he  was 
serving  in  the  army  recognizance  was  extended  to  him  and 
the  suits  were  not  pressed.  In  1866,  as  the  suit  against 
Breslin  had  been  dismissed,  the  prosecution  against  Gibson 


"Rep.,  p.  112.  • 

"See  reports  of  Attorney  General,  Exec.  Doc.,  1862,  II,  253;  1863,  I, 
410;  1864,  I,  605;  1865,  I,  680;  1866,  II,  521. 


165]  FINANCIAL  ADMINISTRATION  165 

was  also  discontinued.  Nothing  seems  to  have  been  secured 
for  the  state  from  the  latter.63 

ESTABLISHMENT  OF  THE  INDEPENDENT  TREASURY. 

As  might  be  expected  the  chief  work  of  the  legislative 
session  of  1858  was  the  passage  of  legislation  designed  to 
cure  the  evils  brought  to  light  by  the  defalcation  of  the 
state  treasurer.  Four  general  acts  were  passed  with  this 
end  in  view :  "an  act  to  provide  for  the  semi-annual  collec- 
tion of  taxes" ;  "an  act  to  provide  for  the  better  regulation 
of  the  receipt,  disbursement,  and  safe-keeping  of  the  public 
revenue";  "an  act  to  define  the  powers  and  prescribe  the 
duties  of  the  board  of  commissioners  of  the  sinking  fund" ; 
"an  act  to  establish  the  independent  treasury  of  the  State 
of  Ohio".  The  last  three  acts  were  passed  on  the  same 
day,  April  12.  Of  these  the  first  was  designed  to  prevent  the 
payment  of  unnecessarily  large  sums  into  the  state  treasury 
at  one  time.  It  provided  that  taxes  might  be  paid,  one-half 
by  December  20  and  one-half  by  June  20;  that  the  county 
treasurer  must  settle  with  the  county  auditor  by  February 
15  or  August  10,  and  within  ten  days  the  country  treasurer 
must  settle  with  the  state  officer.  If  money  were  needed 
by  the  sinking  fund  to  meet  the  semi-annual  interest  pay- 
ments on  the  public  debt  on  January  1  and  July  1,  then  the 
comptroller  could  draw  on  the  county  treasurers  for  the 
amounts  needed.  The  following  year  this  officer  anticipated 
the  revenue  in  this  way  to  the  amount  of  about  $100,000 
in  December  and  again  in  June.64 

The  second  of  the  four  acts  mentioned  provided  for  a 
better  system  of  accountability  and  introduced  some  new 
checks  and  guards.  A  new  officer  was  created  of  comp- 
troller of  the  treasury,  who  was  a  sort  of  third  wheel  in 
the  system  and  whose  office  was  finally  abolished  in  1876, 

"In  September,  1865,  G.  V.  Dorsey,  the  treasurer,  was  arrested  "for 
breaches  of  trust  and  embezzlement".  The  indictments  against  him  were 
quashed  by  a  grand  jury  in  1866.  Rep.  Atty.  Genl.,  Exec.  Doc.,  1866,  II, 
521 ;  Gov.  Mess.,  Exec.  Doc.,  1865,  I,  2. 

"First  an.  rep.  of  Comptr.,  Nov.  16,  1859.  Exec.  Doc.,  1859,  I,  454. 


166  FINANCIAL  HISTORY  OF  OHIO  [166 

after  it  was  demonstrated  that  be  was  not  essential  to 
efficient  financial  administration.65  He  kept  corresponding 
accounts  with  those  of  the  auditor  and  treasurer,  and  thus 
acted  as  a  countercheck  upon  both;  he  kept  a  distinct  ac- 
count with  each  fund;  certified  into  the  treasury  all 
revenues;  looked  after  the  outstanding  claims  due  the 
treasury ;  examined  and  filed  a  duplicate  of  all  claims  upon 
which  the  warrants  of  the  auditor  were  predicated,  and 
countersigned  such  warrants;  kept  an  account  of  the 
securities  deposited  by  the  independent  and  free  banks  for 
the  ultimate  redemption  of  their  notes,  some  of  wrhich  had 
previously  been  under  the  control  of  the  treasurer  and 
others  of  the  auditor,  and  kept  a  detailed  account  of  the 
circulation  of  each  bank.66 

The  auditor  was  made  the  chief  accounting  officer  of 
the  treasury  department,  as  he  has  ever  since  continued  to 
be.  Payments  into  the  treasury  were  to  be  accompanied 
by  a  description  of  the  liability ;  the  comptroller  must  give 
a  certificate  of  payments  to  the  treasurer,  and  the  treasurer 
must  make  out  a  triplicate  receipt,  two  of  which  went  to 
the  comptroller  and  auditor.  Claims  for  payments  out  of 
the  treasury  were  to  be  examined  by  the  auditor  and  comp- 
troller, who  must  be  satisfied  that  such  claim  was  just  and 
legal,  and  that  money  had  been  appropriated  for  its  pay- 
ment. If  these  conditions  were  met  then  the  auditor  should 
issue  a  warrant  on  the  treasurer  for  the  payment  of  the 
claim  out  of  the  appropriate  fund.  The  warrant  was  to  be 
paid  by  the  treasurer,  who  would  take  the  receipt  of  the 
person  paid,  and  (cancel  the  warrant.  A  sjemi-annual 
examination  of  the  books  and  accounts  of  all  financial 
officers,  of  collectors  of  canal  tolls,  of  registers  of  the  land 
offices,  etc.,  was  provided  for,  as  was  also  a  weekly  inter- 
change of  the  statements  of  the  daily  transactions  with 


"At  first  he  was  appointed  by  the  governor,  but  later  the  office  was 
made  elective. 

•This  description  of  his  functions  is  taken  from  the  report  of  the 
Comptroller,  Exec.  Doc.,  1858,  I,  629.  His  duties  were  prescribed  in 
scattered  sections  of  several  acts. 


167]  FINANCIAL  ADMINISTRATION  167 

each  fund  between  the  offices  of  auditor,  comptroller,  and 
treasurer,  and  the  actual  counting  once  a  month  of  all 
cash  in  the  treasury  and  the  publication  of  the  result. 
Under  this  system  the  powers  of  the  treasurer  were  reduced 
to  a  minimum  and  he  was  made  simply  a  responsible  clerk. 
There  was  much  duplication  of  work  and  considerable  red 
tape,  but  while  cumbersome  the  system  was  certainly  safe. 

The  act  establishing  the  independent  treasury  system 
in  Ohio  contained  two  different  sets  of  regulations :  one  had 
to  do  with  the  methods  of  paying  money  into  and  out  of  the 
treasury,  and  the  other  with  the  actual  custody  of  the 
public  moneys  and  the  kind  of  money  to  be  used.  Every 
payment  of  money  into  the  state  treasury  must  be  made 
on  the  draft  of  the  comptroller,  and  all  payments  out  of 
the  treasury  must  be  by  the  warrant  of  the  auditor  on  the 
treasurer,  countersigned  by  the  comptroller.67  Quarterly 
settlements  of  the  three  financial  officers  with  one  another, 
and  frequent  examinations  of  the  state  treasury  were  pro- 
vided for.  Similar  rules  were  laid  down  for  the  counties : 
no  payments  into  or  out  of  county  treasuries  were  to  be  per- 
mitted except  on  the  draft  of  the  county  auditor.  In  the 
provisions  regulating  the  custody  of  the  public  moneys  the 
animosity  to  and  dread  of  the  banks  can  be  clearly  seen. 
Indeed  the  banks  at  that  time  were  often  unscrupulous 
and  corrupting  corporations,  and  occupied  a  role  later 
taken  by  the  railroads  and  most  recently  by  the  industrial 
combinations  and  insurance  companies.  No  money  was  to 
be  deposited  in  banks,  but  the  rooms  of  the  state  treasurer 
were  to  constitute  the  treasury  of  the  state  and  to  be  the 
sole  place  for  the  deposit  and  safekeepinge  of  the  money 
of  the  state.68  The  county  commissioners  were  also  directed 
to  establish  county  treasuries  where  public  moneys  in  the 
hands  of  local  officials  must  be  kept. 

Heretofore  the  public  funds  had  been  kept  partly  in 


"These  provisions  simply  duplicated  those  of  the  other  law  just 
described. 

"Governor  Chase  had  recommended  the  use  of  banks  in  his  message 
of  1857.  Exec.  Doc.,  I,  363.  Cf.  also  message  of  Jan.  3,  1859,  p.  95. 


168  FINANCIAL  HISTORY  OF  OHIO  [168 

the  treasury  vault  itself  and  partly  in  selected  banks.  In 
response  to  a  legislative  inquiry  the  treasurer  of  state 
reported  in  1830  that  the  greater  part  of  the  moneys  had 
been  kept  in  the  vault  of  the  treasury  and  in  the  Franklin 
Bank  of  Columbus,  in  a  chest  under  lock  and  key,  as  a 
special  deposit.69  The  residue  consisted  of  general  de- 
posits in  the  banks  of  Warren,  Lancaster,  and  Columbus. 
About  1825,  however,  in  order  to  meet  the  convenience  of 
the  judges  in  the  northwestern  part  of  the  state,  and  of 
canal  contractors,  and  others,  a  fund  was  deposited  in  the 
Western  Eeserve  Bank  to  facilitate  payments  there,  and 
collectors  of  tolls,  tax  collectors,  etc.,  were  instructed  to 
make  deposits  in  that  bank.  As  the  financial  operations 
of  the  state  expanded  greater  use  was  made  of  banks 
throughout  the  state  as  depositories  and  as  fiscal  agents 
of  the  government.  They  performed  a  useful  service  by 
accepting  on  deposit  the  multifarious  means  of  payment 
which  came  into  possession  of  the  treasury  department: 
checks,  drafts,  bonds,  and  certificates  of  deposit  on  banks 
and  individuals  in  Ohio  and  other  states,  notes  on  banks 
in  Ohio  and  other  states,  some  of  a  doubtful  or  suspicious 
character,  and  small,  defaced  and  mutilated  paper.  In 
return  for  these  the  treasurer  was  privileged  to  drawr  in 
any  kind  of  funds.70  A  few  years  later  the  auditor  reported 
that  the  greater  portion  of  the  public  moneys  were  de- 
posited in  the  different  banks  of  the  state,71  which  deposits 
he  characterized  as  "indiscriminate".72  As  soon  as  the 
treasurer  discovered  that  such  deposits  involved  a  personal 
profit  for  himself  then  they  became  the  all  but  universal 
rule. 

An  attempt  was  also  made  by  the  independent  treasury 


"Letter  of  Treasurer,  Ho.  J.,  1830,  p.  479.  The  treasurer  adds,  "I 
know  of  no  law  in  force  designating  the  place  or  places  where  the  public 
funds  should  be  kept". 

"Such  an  arrangement  was  made  with  the  Lancaster  Ohio  Bank. 
Ibid.,  p.  480. 

"Aud.  rep.,  1837,  p.  ig. 

"Aud.  rep.,  Dec.  5,  1838. 


169]  FINANCIAL  ADMINISTRATION  169 

act  to  effect  a  gradual  transition  in  the  character  of  the 
money  used  by  the  state,  from  the  prevailing  bank  notes 
to  specie  alone.  It  was  provided  that  after  July  4,  1858, 
all  payments  from  the  state  and  county  treasuries  of  under 
$20  must  be  in  specie ;  after  July  4,  1859,  under  $50 ;  after 
1860,  $100 ;  after  1861,  $200 ;  after  1862,  $300 ;  after  1863, 
$400 ;  after  1864,  $500 ;  and  after  July  4, 1865,  all  payments 
must  be  in  specie.  A  penalty  of  a  fine  of  from  $20  to  $500 
was  prescribed  for  disobeying  these  provisions.  Before  this 
plan  could  be  more  than  begun  the  outbreak  of  the  Civil 
War,  the  issuance  of  United  States  notes,  the  suspension 
of  specie  payments  by  the  banks,  and  the  general  use  of 
paper  money  rendered  it  impossible  of  execution. 

Embezzlement  was  also  defined  in  this  comprehensive 
act,  and  a  penalty  of  imprisonment  of  from  one  to  twenty- 
one  years  in  the  penitentiary  at  hard  labor,  according  to 
the  amount  embezzled,  together  with  a  fine  of  double  the 
amount,  was  prescribed.  Here  was  a  noteworthy  effort 
to  make  the  punishment  fit  the  crime. 

Two  criticisms  of  the  independent  treasury  law  were 
promptly  made  by  Governor  Chase,  who  was  ever  a  shrewd 
and  effective  critic  of  the  financial  institutions  of  the 
state.73  While  provision  was  made  for  the  payment  of 
specie  by  the  state  and  county  treasuries,  no  provision  was 
made  for  the  receipt  of  specie  only.  Consequently  the 
county  treasurers  accepted  current  funds  of  whatever 
description,  and  then  bought  exchange  with  these  for 
remittance  to  the  state  treasury.  As  this  encouraged  the 
use  of  foreign  bank  notes,  it  would  doubtless  have  been 
changed  soon  by  legislation,  had  not  the  establishment  of 
the  national  banking  system  and  the  tax  upon  all  state 
bank  notes,  rendered  further  legislation  along  this  line  un- 
necessary. The  other  criticism  was  more  serious.  The 
county  treasurers  had  been  made  depositaries  or  custodians 
of  the  moneys  in  their  hands,  derived  from  taxation,  from 
canal  tolls,  and  other  sources ;  but  as  much  of  this  belonged 

"Gov.  Mess.  Exec.  Doc.,  1858,  I,  94-96;  1859,  II,  51 ;  1860,  I,  548. 


170  FINANCIAL  HISTORY  OF  OHIO  [170 

to  the  state  the  anomaly  was  presented  of  county  officers 
acting  as  custodians  for  the  state  government,  by  whom 
they  were  not  appointed,  to  whom  they  were  not  respon- 
sible, and  as  to  whose  bonds  the  state  had  no  voice. 

The  system  of  payments  in  use  on  the  canals  was  also 
made  the  subject  of  criticism.74  The  superintendent  of 
repairs  rendered  a  quarterly  account  to  the  resident  en- 
gineer, with  the  names  and  amounts  due  laborers,  con- 
tractors, and  other  creditors.  The  resident  engineer  then 
certified  to  the  acting  commissioner  that  he  had  allowed 
these  various  sums,  and  the  acting  commissioner  drew 
his  check  on  the  auditor.  But  in  order  to  make  up  his 
accounts  the  superintendent  got  vouchers  from  contractors 
and  laborers  on  a  promise  to  pay  the  amounts  due  after 
he  got  his  accounts  settled  and  paid.  They  often  suffered 
loss,  and  the  state  on  the  other  hand  was  forced  to  pay 
high  prices  because  of  the  credit  system  and  the  uncer- 
tainty and  delay.  The  lease  of  the  public  works  in  1861, 
and  the  withdrawal  of  the  state  from  the  operation  of  the 
canals,  put  an  end  to  the  system  and  the  objections. 

The  act  of  April  12, 1858,  establishing  the  independent 
treasury  system  had  authorized  the  governor  to  have 
special  examinations  of  the  treasury  made  without  previous 
notice.  This  was  done  with  considerable  regularity  at  odd 
intervals  for  some  years,  and  must  have  exercised  a  whole- 
some check  upon  all  administrative  officers  in  the  treasury 
department.  Approval  of  the  system  was  generally  ex- 
pressed in  the  reports  of  these  special  examiners,  of  which 
the  following  is  typical  :75 

The  books  in  all  departments  are  carefully  kept,  and  the  system  seems 
so  perfect  that  errors  in  any  of  them  are  soon  detected  in  the  others. 

The  system  was  complicated  and  called  for  much  duplica- 
tion, but  certainly  safeguarded  the  financial  interests  of 
the  state  effectively.  The  following  description  portrays 


T42ist  an.  rep.  B.  P.  W.  Exec.  Doc.,  1859,  I,  641. 

"Rep.  of  Special  Examiners  of  the  Treasury,  Aug.  8,  1866.  Exec.  Doc., 
1866,  I,  291. 


171]  FINANCIAL  ADMINISTRATION  171 

the  practical  working  of  the  laws  after  an  experience  of 
seven  years:76 

To  keep  securely,  in  special  vaults  and  safes  in  the  treasury  itself, 
the  public  money  collected  by  taxation,  and  to  separate  it  entirely  from 
commercial  use,  has  been  the  object  sought  by  the  enactment  of 
the  so-called  "Sub-Treasury  Laws".  If  an  extensive  system  of  accounts, 
multiplied  entries,  numerous  checks  and  guards,  and  frequent  examina- 
tions of  the  treasury  could  effect  the  purpose,  it  has  been  accomplished 
in  the  details  of  the  several  "acts".  Each  transaction  is  transcribed  and 
registered  at  least  ten  times,  and  is  posted  into  seven  separate  sets  of 
books.  There  is  a  comparison  weekly  of  the  accounts  of  the  auditor  and 
comptroller  with  those  of  the  treasurer.  Every  month  an  examination 
of  the  cash  assets  is  had  by  the  auditor.  At  the  close  of  every  three 
months  the  auditor  and  comptroller,  after  comparing  and  adjusting  their 
own  records  of  drafts  and  warrants,  are  required  to  make  a  settlement 
with  the  treasurer,  and  to  ascertain  the  precise  condition  of  the  treasury, 
and  to  count  the  cash,  etc.  And  whenever  he  deems  necessary,  the 
governor  may  appoint  a  special  examination  by  an  accountant,  without 
previous  notice  to  the  treasurer.  In  addition  to  all  this,  the  general 
assembly,  or  either  branch,  may  order  an  examination  of  the  treasury 
by  a  committee,  when  it  is  thought  expedient.  Furthermore,  it  is  made  a 
high  crime  and  misdemeanor,  punishable  by  fine  and  imprisonment,  to 
convert,  use,  loan,  or  deposit  with  banks  or  individuals,  any  portion  of 
the  public  money. 

After  this  long  description,  the  treasurer  added, 
"while  much  complaint  has  been  made  of  the  law,  of  its 
being  impracticable,  and  difficult  to>  be  strictly  observed 
and  adhered  to,  a  careful  study  of  its  provisions  leads  me 
to  the  opinion  that  very  little  modification  is  necessary  in 
them."  A  decade  later,  however,  that  third  wheel  in  the 
system,  the  office  of  comptroller  of  the  treasury,  was 
abolished.77  It  had  served  its  purpose  and  had  acted  as  a 
salutary  check  upon  the  other  officers  during  a  period  of 
distrust  and  reorganization,  but  had  now  outlived  its  use- 
fulness. 

The  treasury  department  and  the  board  of  public 
works  had  been  reformed  with  such  thoroughness  that  no 
further  irregularities  developed  in  those  places.  But  the 
fever  sores  of  corruption  had  not  been  completely  eradi- 

"Rep.  of  Treas.,  Exec.  Doc.,  1865,  II,  41. 

"73  O.  L.,  p.  79.    See  also  Aud.  rep.,  Exec.  Doc.,  1876,  I,  7. 


172  FINANCIAL  HISTORY  OF  OHIO  [172 

cated  and  broke  out  once  more  in  connection  with  the 
institutions  of  the  state.  There  was  looseness  and  irregu- 
larity in  connection  with  purchases  of  supplies  and  expen- 
diture of  public  funds,  against  which  an  act  of  March  9, 
1882,  was  directed  ;78  this  provided  for  monthly  statements 
to  the  auditor  from  the  superintendents  and  trustees  of  all 
the  benevolent  and  reformatory  institutions  of  the  state. 
Another  act  of  the  same  session — to  prevent  errors  and 
irregularities  in  the  several  state  departments79 — provided 
that  all  state  officers,  heads  of  departments,  commissioners, 
and  other  officials  should  make  monthly  statements  to  the 
auditor  of  state  of  the  checks  and  requisitions  made  by 
them,  on  blanks  to  be  furnished  by  the  auditor.  The  latter 
was  directed  to  compare  such  statements  and  file  them.  In 
this  way  a  more  careful  control  and  audit  of  accounts  of 
the  state  institutions  was  made  possible. 

THE    PRESENT    ORGANIZATION    AND    ADMINISTRATION    OF   THE 
TREASURY  DEPARTMENT. 

After  the  abolition  of  the  office  of  comptroller  in  1876 
the  auditor  became  by  law  the  chief  accounting  officer  of 
the  state.  His  financial  duties  are  defined  as  follows: 

He  shall  keep  in  his  office  full  and  accurate  accounts  of  all  moneys, 
bonds,  stocks,  securities  and  other  property  and  effects  paid  into  or 
deposited  in  the  state  treasury,  and  manage  and  direct  all  negotiations 
and  corespondence  concerning  the  same. 

He  is  compelled  to  keep  accurate  account  of  all  appropria- 
tions made  by  law,  and  of  moneys  drawn  to  meet  the  same ; 
in  this  respect  his  duties  are  those  of  the  federal  Register 
of  the  treasury.  No  money  may  be  drawn  from  the  treasury 
except  upon  his  warrant.  Every  state  officer,  board,  or 
department  which  receives  money  belonging  to  the  state  is 
required  to  make  weekly  payments  to  the  state  treasurer, 
and  to  file  a  verified  statement  of  such  receipts  with  the 
state  auditor.  The  auditor  and  treasurer  must  compare 
statements  and  balance  accounts  weekly,  publish  a  joint 
monthly  statement,  and  make  quarterly  reports  to  the  gov- 


"79  O.  L.  32. 

"Act  of  April  7,  1882.  79  O.  L.  77. 


173]  FINANCIAL  ADMINISTRATION  173 

ernor.  In  December  of  each  year  the  treasurer  must  pub- 
lish in  two  Columbus  papers  a  tabulated  statement  of 
receipts  and  expenditures  for  the  preceeding  year.  Money 
coming  into  the  treasurer's  hands  is  not  permitted  to  lie 
idle,  but  must  be  deposited,  since  1894,  with  certain  banks 
and  trust  companies  called  state  depositories  and  desig- 
nated after  competitive  bidding  by  a  board  of  deposit. 

The  auditor  must  keep  a  strict  account  of  all  moneys 
and  securities.  The  auditor's  books  should  at  all  times 
show  the  exact  financial  status  of  the  treasury.  The  con- 
trol of  the  state's  finances  has  been  virtually  concentrated 
in  the  auditor's  office,  and  the  treasurer's  position  has  been 
reduced  to  that  of  custodian  of  the  public  funds.  The 
latter  official  has  practically  ceased  to  make  an  annual 
report,  his  brief  statement  simply  repeating  the  totals  of 
the  exhaustive  report  required  by  law  of  the  auditor.  Upon 
the  treasurer,  however,  some  other  duties  of  a  non-financial 
character  have  been  laid;  thus  in  1872  he  was  given  the 
task  of  making  an  annual  statistical  report,  hitherto  made 
by  the  state  statistician ;  this  is  done  in  a  most  perfunctory 
manner.  He  is  also  the  head  of  the  state  board  of  elections, 
and  one  of  his  chief  duties  is  the  compilation  of  statistics 
and  election  returns. 

The  auditor  stood  at  the  head  of  the  taxing  system  of 
the  state  until  the  establishment  of  the  permanent  tax 
commission  in  1910.  Abstracts  of  the  assessment  rolls 
were  always  returned  to  him.  Settlements  must  be  made 
with  him  in  February  and  August  of  each  year.  He  has 
also  the  power  to  examine  the  county  treasuries  upon 
request  made  by  the  county  commissioners  or  county 
auditor.  The  comptroller  of  the  treasury  had  formerly  had 
the  power  of  appointing  accountants  to  examine  the  county 
treasuries  at  his  pleasure,  but  rarely  used  it.  A  long  step 
forward  in  the  direction  of  centralized  control  in  financial 
matters  was  taken  with  the  passage  of  the  act  for  uniform 
accounting  in  190280.  This  act  created  a  bureau  of  inspec- 
ts O.  L.,  p.  511. 


174  FINANCIAL  HISTORY  OF  OHIO  [174 

tion  and  supervision  of  public  offices,  at  the  head  of  which 
stands,  ex  officio,  the  auditor  of  state.  He  is  directed  to 

formulate,  prescribe  and  install  a  system  of  accounting  and  reporting  that 
shall  be  uniform  for  every  public  office  and  every  public  account  of  the 
same  class. 

Every  taxing  body,  public  institution,  and  public  service 
industry  must  report  annually  to  the  auditor.  The  law 
practically  centralizes  the  control  of  Ideal  finances  in  the 
hands  of  the  state  auditor  and  gives  him  firm  control.81 

The  powers  of  the  state  auditor  are,  however,  by  no 
means  limited  to  statutory  grants.  As  financial  head  of 
the  state  administration  he  meets  with  the  House  and 
Senate  committees  on  Finance  and  on  Taxation,  and  prac- 
tically frames  the  budget.  The  most  permanent82  and 
powerful  official  in  the  capitol,  his  advice  is  both  sought 
and  heeded  by  a  shifting  and  uninformed  body  of  legis- 
lators, and  he  is  able  to  direct  as  well  as  to  restrain.  Prac- 
tically all  important  financial  legislation  is  formulated  in 
his  office.83  He  has  evolved  into  a  powerful  administrator 
of  the  state's  finances,  as  well  as  a  supervisor  of  local 
finances.  He  is  without  doubt  the  most  important  financial 
officer  in  the  state. 

II.    BUDGETARY  LEGISLATION  AND  PRACTICE. 
THE  CONSTITUTION  OF  1802. 

The  constitution  of  1802  sketched  in  outline  only  the 
form  of  government  and  left  to  the  legislature  the  task  of 
filling  in  the  gaps;  and  perhaps  in  no  respect  were  the 
gaps  greater  than  in  the  case  of  financial  provisions.  In 
the  six  following  paragraphs  are  stated  all  the  commands 

MSee  article  on  "Recent  Tax  Reforms  in  Ohio",  in  American  Economic 
Review,  Sept.,  1911,  p.  517. 

**The  present  auditor  has  held  the  office  since  1909.  His  immediate 
predecessors  held  office  respectively  thirteen  and  eight  years. 

"This  statement  needs  modification  in  view  of  the  great  influence 
exerted  by  the  Ohio  Chamber  of  Commerce,  under  the  energetic  leader- 
ship of  Mr.  A.  R.  Foote. 


175]  FINANCIAL  ADMINISTRATION  175 

or  restrictions  contained  in  this  instrument  in  any  way 
related  to  the  subject  of  finance : 

Article  I,  sec.  16.  Bills  may  originate  in  either  House,  but  may 
be  altered,  amended,  or  rejected  by  the  other. 

Sec.  17.  Every  bill  shall  be  read  on  three  different  days  in  each 
House,  unless,  in  case  of  urgency,  three-fourths  of  the  House  where  such 
bill  is  so  depending  shall  deem  it  expedient  to  dispense  with  this  rule; 
and  every  bill  having  passed  both  Houses,  shall  be  signed  by  the  Speakers 
of  their  respective  Houses. 

Sec.  21.  No  money  shall  be  drawn  from  the  treasury,  but  in  con- 
sequence of  appropriations  made  by  law. 

Sec.  22.  An  accurate  statement  of  the  receipts  and  expenditures 
of  the  public  money  shall  be  attached  to,  and  published  with  the  laws, 
annually. 

Article  VIII,  sec.  23.  The  levying  of  taxes,  by  the  poll,  is  grievous 
and  oppressive ;  therefore,  the  legislature  shall  never  levy  a  poll  tax  for 
county  or  state  purposes. 

Practically  the  only  safeguard  prescribed  against  an 
improper  application  of  the  public  funds  was  the  provisions 
contained  in  sections  21  and  22  of  Article  I.  The  power  to 
impose  taxes  or  to  raise  revenue  was  not  expressly  given 
to  the  legislature  by  the  constitution,  but  was  exercised  as 
a  power  necessarily  implied.84  Neither  of  these  legislative 
functions,  of  appropriation  or  of  taxation,  was  very 
jealously  guarded  by  the  legislature  during  the  early 
history  of  the  state,  but  were  delegated  to  executive  officers 
or  were  exercised  by  them  without  express  grant  of 
authority.  The  early  laws  and  especially  the  tax  law  of 
1825  made  the  auditor  of  state  a  very  important  and  power- 
ful functionary.  When  there  was  not  enough  money  left 
out  of  the  revenues  of  the  canals  and  public  works  after 
improvements  had  been  paid  for,  the  auditor  had  the  power 
to  levy  upon  the  citizens  to  secure  money  for  the  payment 
of  the  interest  upon  the  public  debt. 

In  conjunction  with  the  state  treasurer  and  one  act- 
ing commissioner  of  the  canal  board,  he  could  make  grants 
of  large  sums  which  were  annually  expended  for  the  repairs 
of  the  public  works.  On  a  limited  scale  Ohio  had  a  com- 
plete system  of  income  and  expenditure  without  the  agency 

"Chase's  Statutes,  I,  33. 


176  FINANCIAL  HISTORY  OF  OHIO  [176 

of  the  legislature.  The  provision  that  "no  monej'  shall  be 
drawn  from  the  treasury  but  in  consequence  of  appropria- 
tions made  by  law"  was  for  years  a  practical  nullity.85 
The  withdrawal  from  the  treasury  of  any  amount  of  money 
that  might  be  claimed  as  needed  for  the  repair  of  the  public 
works,  or  the  payment  of  interest  on  the  public  debt,  was 
held  to  be  authorized  by  the  provisions  of  a  law  that  re- 
mained unrepealed  on  the  statute  books.  The  system  was 
later  characterized  by  the  judiciary  committee  as  follows  : 

Our  enormous  expenditures  are  authorized  in  conclave  by  a  handful  of 
men  without  actual  or  effective  practical  responsibility.  The  deliberations 
of  the  Venetian  Council  of  Ten  were  known  by  their  effects;  the  delibera- 
tions of  our  council  of  ten  are  known  by  nothing  else.86 

Dissatisfaction  with  the  system  of  taxation,  as  also 
the  way  in  which  money  was  appropriated,  led  finally  to  a 
demand  for  a  change.  It  was  evident  that  a  solid  founda- 
tion of  constitutional  law  was  needed  upon  which  to  build 
an  effective  system  of  taxation  and  control  of  expenditures. 
This  solid  foundation  was  not  to  be  secured  out  of  the 
fragments  of  the  first  constitution,  which  dealt  so  lightly 
with  finance  and  taxation.  New  material  and  more  defi- 
nite provisions  were  needed,  which  could  be  obtained  only 
by  framing  a  new  constitution. 

THE  CONSTITUTION  OF  1851. 

The  constitution  of  1851  contained  careful  and  specific 
provisions  on  the  subjects  both  of  appropriations  and  of 
taxation.  The  purpose  of  the  former  was  to  bring  the 
expenditures  of  public  money  more  thoroughly  under  the 
restraints  of  law,  and  less  subject  to  the  control  of  in- 
dividual officers.  For  the  passage  of  bills,  budgetary  as 
well  as  others,  the  same  legislative  procedure  was  pre- 
scribed as  had  been  provided  for  in  the  constitution  of 
1802.87  The  further  provision  was  added,  however,  that 

"Aud.  rep.,  Feb.  12,  1853. 

"Report  of  Judiciary  Committee  on  Senate  Bill  24,  Feb.  12,  1849. 

"See  p.  175- 


177]  FINANCIAL  ADMINISTRATION  177 

no  bill  should  contain  more  than  one  subject,  which  should 
be  clearly  expressed  in  the  title.88  The  appropriation  and 
disbursement  of  money  was  more  carefully  guarded  in  the 
following  section:  "No  money  shall  be  drawn  from  the 
treasury,  except  in  pursuance  of  a  specific  appropriation, 
made  by  law;  and  no  appropriation  shall  be  made  for  a 
longer  period  than  two  years".89  All  discretion  was  there- 
by taken  away  from  administrative  officers  as  to  the  appli- 
cation of  public  funds;  each  general  assembly  was  made 
the  judge  of  its  own  needs,  and  could  not  bind  its  suc- 
cessors. 

On  the  other  hand,  the  determination  of  the  rate  of 
taxation,  and  the  raising  of  the  necessary  revenue,  was 
placed  definitely  under  the  control  of  the  legislature  in  the 
sections  dealing  with  taxation  and  finance.  After  pro- 
hibiting the  levying  of  poll  taxes,  and  providing  for  the 
uniform  taxation  of  all  property,90  real  and  personal,  cor- 
porate and  individual,  the  following  sections  appeared:91 

The  general  assembly  shall  provide  for  raising  revenue,  suffiicent  to 
defray  the  expenses  of  the  state,  for  each  year,  and  also  a  sufficient  sum 
to  pay  the  interest  on  the  state  debt. 

No  tax  shall  be  levied,  except  in  pursuance  of  law ;  and  every  law 
imposing  a  tax  shall  state,  distinctly,  the  object  of  the  same,  to  which 
only,  it  shall  be  applied. 

The  state  shall  never  contract  any  debt  for  purposes  of  internal 
improvement. 

In  every  one  of  these  clauses  can  be  seen  the  fruit  of 
past  experiences.  Deficit  financiering  was  to  be  avoided 
if  possible,  as  was  the  practice  of  borrowing  to  pay  the 
interest  on  the  public  debt.  Any  further  debt  for  the  con- 
struction or  improvement  of  the  canals  was  forbidden,  thus 
making  impossible,  without  a  constitutional  amendment, 
any  comprehensive  scheme  of  enlargement  such  as  that 
adopted  in  New  York  for  the  Erie  canal.  The  clause  of 
section  5,  providing  for  the  application  of  every  tax  to  a 

"Art.  ii,  sec.  16. 

"Art.  II,  sec.  22. 

"See  Chap.  IV,  The  General  Property  Tax. 

"Art.  XIII,  sec.  4-6. 


178  FINANCIAL  HISTORY  OF  OHIO  [178 

specific  object,  was  unfortunate  in  so  far  as  it  led  to  the 
segregation  of  different  sources  of  income,  or  the  proceeds 
from  certain  taxes  in  separate  "funds".  The  device  of 
having  a  separate  fund  for  almost  every  item  of  expenditure 
led  to  a  confusing  multiplication  of  such  funds,  which  had 
no  practical  significance,  were  mere  bookkeeping  abstrac- 
tions, and  served  only  to  complicate  the  accounts  of  the 
treasury  department.  There  was  a  steady  tendency  to 
merge  them  all  in  the  general  revenue  fund,  and  today 
there  exist,  outside  of  this,  only  the  school  fund  and  sinking 
fund. 

PRESENT  BUDGETARY  PRACTICE. 

The  budgetary  practice  of  Ohio  does  not  differ  materially 
from  that  of  other  states.92  Certain  restrictions  are  placed 
in  the  constitution  upon  the  power  of  the  general  assembly 
to  levy  taxes.  Thus,  they  are  forbidden  to  levy  a  poll  tax, 
and  they  are  forbidden  to  classify  different  objects  of  taxa- 
tion, but  must  tax  all  property  by  a  uniform  rule.93  In 
the  matter  of  appropriations,  too,  they  are  restrained  by 
the  usual  provisions  as  to  the  reading  of  bills  on  three 
separate  days,  etc.;  no  money  may  be  drawn  from  the 
treasury  except  in  pursuance  of  a  specific  appropriation, 
made  by  law;  and  no  appropriation  may  be  made  for  a 
longer  period  than  two  years.  No  money  may  be  appro- 
priated for  any  claim  the  subject  matter  of  which  is  not 
provided  for  by  existing  laws,  unless  it  is  approved  of  by 
two-thirds  of  the  members  elected  to  each  branch  of  the  leg- 
islature.94 

The  general  assembly  meets  in  biennial  session  in 
January  of  each  even  numbered  year.  No  limit,  such  as 
exists  in  fully  half  of  the  states  in  the  Union,  is  placed  upon 
the  length  of  their  session,  and  extraordinary  sessions  are 
frequently  called  in  the  intervening  years.  The  fiscal  year, 

^See  my  article  on  "Financial   Procedure  in  State  Legislatures",   in 
Annals  of  the  Academy  of  Social  and  Political  Science,  Sept.,  1896. 
"Art.  XII,  sec.  i,  2. 
"Art.  II,  sec.  16,  22,  29. 


179]  FINANCIAL  ADMINISTRATION  179 

on  the  other  hand,  begins  on  November  16,  but  any  incon- 
venience that  might  arise  from  having  the  legislature  con- 
vene almost  two  months  later  than  the  beginning  of  the 
fiscal  years  is  averted  by  making  the  appropriations  so  that 
the  appropriation  period  takes  in  three-fourths  of  one  fiscal 
year  and  one-fourth  of  the  next.  The  general  assembly  has 
five  or  six  weeks  therefore  in  which  to  deliberate  before  it 
becomes  necessary  to  provide  new  appropriations.  As  a 
matter  of  fact,  however,  two  regular  deficiency  bills  are 
generally  introduced  at  the  beginning  of  each  session,  one 
providing  for  "authorized  deficiencies",  and  the  other  for 
"unauthorized  deficiencies".  Aside  from  these  practically 
all  appropriations  are  provided  for  by  a  general  appropria- 
tion bill.  The  committee  which  has  this  in  charge  usually 
meets  in  the  office  of  the  auditor  of  state,  whose  advice 
carries  great  weight.  Appropriations  are  usually  limited 
by  the  revenues  that  may  be  expected  under  the  existing  tax 
rates.  Money  bills  may  originate  in  either  branch,  but 
usually  originate  in  the  House. 

The  various  stages  of  debate  and  vote  in  the  passage  of 
financial  legislation  is  not  subject  to  any  very  different 
procedure  from  that  accorded  ordinary  bills.  There  are 
standing  committees  on  Finance  in  both  Senate  (11  mem- 
bers) and  House  (13  members)  ;  one  on  Taxation  in  the 
Senate  (11  members),  and  one  on  Taxation  and  Revenues 
in  the  House  (13  members).  There  is  no  committee  of 
audit  in  either  branch.  The  rules  of  the  Senate  provide 
that  the  yeas  and  nays  shall  be  called  upon  the  adoption  of 
all  resolutions  providing  for  the  expenditure  of  money,  and 
a  majority  vote  of  all  the  Senators  elected  shall  be  neces- 
sary to  the  adoption  of  such  a  resolution.95  Both  Senate 
and  House  rules  provide  that  a  separate  vote  may  be  taken 
on  any  item  in  an  appropriation  bill,  upon  the  demand  of 
five  Senators  or  ten  Representatives;  such  item  to  be 
stricken  from  the  bill  imless  receiving  a  majority  of  all  the 


"Manual  of  Legislative  Practice  in  the  General  Assembly  of  Ohio 
(1910).    Rules  of  the  Senate,  Rule  43. 


180  FINANCIAL  HISTORY  OF  OHIO  [180 

members  elected,  and  the  yeas  and  nays  to  be  recorded  on 
such  vote.96  The  House  stands  alone  in  requiring  the  refer- 
ence of  every  bill  carrying  an  appropriation  to  the  finance 
committee  before  its  third  reading. 

A  peculiar  feature  of  the  Ohio  constitution  had  been 
the  fact  that  the  governor  did  not  possess  the  veto  power, 
but  this  was  given  him  by  an  amendment  adopted  in  No- 
vember, 1903.  He  now  has  the  power  to  veto  any  bill  or 
any  separate  section  or  item  of  appropriation,  but  the  gen- 
eral assembly  may  pass  it  over  his  veto  by  a  two-thirds  vote. 
His  signature  is  necessary  to  every  bill  which  he  approves, 
before  it  can  become  a  law ;  but  if  he  does  not  sign  or  veto 
a  bill  within  ten  days,  it  shall  be  law  in  like  manner  as  if 
signed.97  He  is  allowed  ten  days  in  which  to  make  up  his 
mind  in  Ohio,  though  most  of  the  states  do  not  allow  so  long 
a  time. 

Money  which  has  been  appropriated  must  be  expended 
within  two  years,  or  it  reverts  to  the  treasury.98  To  supply 
casual  deficits  or  failures  in  revenues,  or  to  meet  expenses 
not  otherwise  provided  for,  the  state  may  contract  debts  to 
the  amount  of  $750,000.  In  case  of  a  deficiency  which 
occurs  when  the  legislature  is  not  in  session,  an  emergency 
board  consisting  of  the  governor,  auditor,  attorney-general, 
and  the  chairmen  of  the  House  and  Senate  finance  commit- 
tees may  authorize  deficiencies,  which  are  subsequently  met 
by  the  bill  for  "authorized  deficiencies". 


"Senate  rules,  78 ;  House  rules,  87. 
"Constitution  of  Ohio,  Art.  II,  sec.  16. 
"Art.  II,  sec.  22. 


PART  II.    THE  HISTORY  OF  TAXATION  IN  OHIO 


CHAPTER  IV. 

THE  GENERAL  PROPERTY  TAX. 
I.    THE  LAND  TAX,  1803-1825. 

From  1803  to  1825  the  state  of  Ohio  derived  the  main 
portion  of  its  revenues  from  the  tax  on  land.  Not  until 
1825  was  the  general  property  tax  introduced.  The  first 
la  win  relation  to~taxation  which  was  passed  by  the  legis- 
lature after  Ohio  became  a  State,  was  enacted  April  16, 
1803.  This  was  entitled  "an  act  to  revive  and  continue  in 
force,  several  acts  levying  taxes,  and  for  other  purposes." 
Under  the  earlier  acts  thus  referred  to  land  was  divided 
into  three  classes,  "according  to  their  quality ....  taking 
into  view  the  surface  of  the  earth  as  well  as  the  quality  of 
the  soil.1  As  a  guide  for  the  listing  of  land  under  these 
three  heads,  the  act  continued:  "when  the  greater  part 
of  a  tract  shall  be  superior  in  quality  to  the  second  rate,  it 
shall  be  denominated  first  rate;  when  a  greater  part  of  a 
tract  shall  be  inferior  to  the  first  rate  and  superior  to  the 
third  rate  it  shall  be  denominated  second  rate;  and  when 
a  greater  part  of  a  tract  shall  be  inferior  to  second  rate  it 
shall  be  denominated  third  rate".  The  rate  of  taxation  on 
the  first  rate  land  was  about  50  per  cent  more  than  that  on 
second  rate,  and  this  in  turn  was  about  50  per  cent  higher 
than  that  on  third  rate  land.  This  method  of  dividing  the 
lands  into  three  classes  for  purposes  of  taxation  continued 

'Act  of  May  i,  1798.    For  a  fuller  description  of  these  acts,  see  chap- 
ter on  Territorial  Finance,  p.  n. 


182 


FINANCIAL  HISTORY  OF  OHIO 


[182 


unchanged  until  1825.    The  following  table  gives  the  rates 
of  taxation  from  1799  to  1825 : 


RATES  OF  TAXATION  FOR  IOO  ACRES. 


Years. 


1/99 

1800 .85 

1801 .55 

1802 .60 

1803 .60 

1804 .70 

1805 .90 

1806 .90 

1807 .90 

1808 i.oo 

1809 i.oo 

1810 1.25 

1811 1.25 

1812 1.25 

1813" 1.25 

1814 2.00 

1815 3.60 

1816 3.00 

1817 3.00 

1818 2.00 

1819 1.50 

1820 1.50 

1821 i.oo 

1822 1.50 

1823 1.50 

1824 1.25 

1825  1.50 


ist  Rate. 


2nd  Rate. 

$  .20 
.60 

-35 
.40 
.40 
•SO 
.65 
.65 
.65 
•75 
•75 
i.oo 

I.OO 
I.OO 
I.OO 

1.50 

2.68 
2.25 
2.25 
1.50 

I.OO 
I.OO 

•75 


3rd  Rate 

$  .10 
•25 
•17 

.20 
.20 
.26 
40 
.40 
.40 
•50 
•50 
•65 
.65 
•65 
•65 
I.OO 

1.78 
1.50 
1.50 

I.OO 

.50 
.50 

•So 
•75 
•75 
•56 

•75 


Penalty  for 
not  returning 
property  for 

taxation. 
No  penalty. 
10  per  cent 
50  per  cent 
50  per  cent. 
25  per  cent. 
25  per  cent. 


100  per 

100  per 

loo  per 

100  per 

loo  per 

100  per 

loo  per 

loo  per 

loo  per 

50  per 

25  per 

25  per 

25  per 

25  per 

25  per 

25  per 


cent 
cent, 
cent, 
cent, 
cent, 
cent, 
cent, 
cent, 
cent, 
cent, 
cent 
cent, 
cent, 
cent 
cent, 
cent. 


By  another  early  law4  the  owners  were  required  to  give 


2Table  taken  from  auditor's  report  in  Ho.  J '.,  1825,  p.  22,  for  years 
1800-1818.  The  rest  of  the  auditor's  table  is  incorrect,  and  the  rates  are 
taken  from  the  laws. 

'The  Ho.  J.  for  1814,  p.  147,  gives  the  rates  for  1813  as  follows :  First 
rate,  $1.87^;  second  rate,  $1.50;  third  rate,  . 

4Act  of  Dec.  19,  1709. 


183]  THE  GENERAL  PROPERTY  TAX  183 

a  list  of  their  lands,  on  oath,  to  the  county  commissioners ; 
those  refusing  were  fined  $30  and  their  taxes  were  doubled. 
Any  person  giving  evidence  of  a  violation  of  this  law  was  to 
receive  one-half  of  the  fine.  The  taxes  were  collected  by 
the  sheriff,  or  other  collector,  who  received  6  per  cent5  of 
all  he  collected  by  way  of  compensation.  Lists  of  lands 
belonging  to  non-residents  were  kept  by  the  county  auditor 
and  clerk  of  the  peace. 

It  is  clear  that  under  this  system  of  individual  listing 
of  land  for  taxation  there  was  a  strong  temptation  to  omit 
lands  altogether  from  the  list  or  to  place  the  land  in  a 
lower  class,  for  which  the  tax-rate  was  smaller.  The  basis 
of  classification  adopted  by  the  listers  and  county  commis- 
sioners was  also  unfair  in  many  cases. 

Bottom  lands,  along  the  streams  and  rich  prairie,  were  first  rate  and  paid 
the  highest  tax.  These  lands  might  be  worth  very  little  from  many 
circumstances,  such  as  their  liability  to  be  overflowed  by  freshets,  and 
might  be  distant  from  any  town,  so  that  even  third  rate  lands  might  be 
far  more  valuable  than  the  first  rate  lands.  For  mere  cultivation,  the 
second  rate  lands,  lying  generally  on  what  was  denominated  second  bot- 
toms, were  better  adapted  to  produce  grain  than  those  of  the  first  class.* 

The  result  of  this  system  was  a  steady  transference  of 
land  from  the  higher  to  the  lower  classes,  practically  all 
of  the  new  entries  being  listed  as  second  or  third  rate.  This 
tendency  is  clearly  shown  in  the  following  table  :7 


BThe  compensation  of  the  sheriff  was  raised  to  /%  by  act  of 
Jan.  23,  1802. 

"Atwater,  History  of  Ohio. 

'This  table  is  compiled  from  the  auditor's  annual  reports.  The  table 
now  reprinted  each  year  in  the  auditor's  report  is  not  complete,  and  not 
altogether  accurate. 


184 


FINANCIAL  HISTORY  OF  OHIO 


[184 


AMOUNT  OF  LAND   IN   DIFFERENT   CLASSES,   AND   AMOUNT   OF   TAXES   THEREON, 

1802-1825. 


First 
Quality 
of  Land. 

Second 
Quality 
of  Land. 

Third 
Quality 
of  Land. 

*0 

0> 

t/5 

o 

oJ 

Years. 

at 

<u 

0 

0 

en 

(LI 
k* 
O 

13 
o 
h 

"5 

"o 
H 

o 

u 

rt 
JS 
(/) 

1803  

IOI.7OQ 

2,326,226 

•3.641.604 

6,060,620 

22,321 

1804  . 

numbei 

of  acres  in 

different 

1805  . 

rates 

not  disting 

uished. 

7,252,856 

43,512 

2/ 

1806  

7,917,590 

48,260 

U 

1807  

H 

« 

« 

7,886,841 

43,632 

*A 

1808  

]  47,O93 

5,080,133 

5,241,804 

10,479,029 

67,501 

*A 

1809  

I  4I,8O5 

3,971,825 

5,810,403 

9,924,033 

63,991 

1810  

120,741 

4,177,050 

5,625,408 

n.Q^.OQQ 

85,064 

2/ 

1811  

6,456,113 

5,,1/Ml-??Q 

12,0^4,777 

170,547 

2/ 

1812  

185,775 

5,585,367 

6,508,800 

II,37O,O32 

155,137 

24 

170,666 

4,858,750 

10,934,323 

108,761 

1814  . 

180,370 

4,919,968' 

5,995,540 

11,095,878 

165,106* 

'/• 

1815  

174,819 

4,856,097 

6,058,398 

II,O9O,2I4 

259,486 

7<i 

1816  
1817  
1818  
1819  
1820  
1821  
1822  
1823  
1824  
1825  

i73,74i 
165,492 

205,344 
126,138 
255,082 
241,914 
226,084 
234,000 
222,852 
178,998 

4,366,846 
5,027,390 
5,174,726 
5,251,270 
7,304,633 
7,734,974 
6,870,921 

6,859,439 
6,822,230 
5,672,277 

6,008,517 
6,138,738 
6,334,404l 
7,26l,632 

5,759,323 
6,402,336 

6,585,449 
7,Ol6,3I2 
7,675,566 
7,173,798 

10,639,104 
11,331,620 
11,714,468 
12,639,040 

13,319,043 
14,380,224 
13,682,454 

14,110,381 
14,720,648 

13,025,073 

229,898 
231,812 
169,185 
1/9,476 
205,347 
171,649 
188,648 
194,290 
1/0,761 
200,405 

That  these  provisions  were  not  satisfactory  is  evident 
from  the  following  quotation  from  the  governors  message 
in  December,  1803 :10 


*The  Ho.  J.,  1815,  p.  24,  gives  second  rate  land  as  4,713,841  and  the 
tax  as  $159,116. 

'There  was  a  mistake  in  the  original  item,  the  result  of  an  error  in 
addition. 

"Ho.  J.,  1803-4,  P-  8. 


185]  THE  GENERAL  PROPERTY  TAX  185 

The  laws  levying  a  tax  on  land  should  be  revised :  lands  of  resident 
proprietors  should  be  listed  anew,  and  a  list  of  all  lands  acquired  by  indi- 
viduals but  not  entered  for  taxation,  should  be  secured.  Also  a  more 
expeditious  and  certain  way  of  obliging  delinquent  collectors  to  account 
for  and  pay  into  the  treasury,  their  balances,  should  be  devised. 

During  this  session  of  the  legislature  the  first  posi- 
tive act  on  state  taxation  was  passed,11  providing  that  "all 
lands,  the  property  of  individuals,  within  this  state,  shall 
be  chargeable  for  the  state  expenses".  Listers  were  ap- 
pointed in  each  township  who  were  to  require  owners  to 
list  their  lands  by  April  15;  if  they  refused,  double  taxes 
were  to  be  imposed.  In  accordance  with  the  compact  made 
between  the  federal  government  and  Ohio,  when  she  entered 
the  Union,  lands  purchased  from  the  United  States  after 
June  30,  1802,  were  to  be  exempt  for  five  years.  Owners 
of  land  in  the  Virginia  military  district  were  taxed  separ- 
ately, and  had  their  own  collectors  and  tax  machinery. 

This  act  did  not  meet  the  real  difficulties,  and  as  the  old 
laws  were  left  unrepealed,  considerable  confusion  resulted. 

The  act  levying  a  State  tax,  passed  at  the  last  session,  taken  into  view  with 

those  heretofore   enacted   on   that   subject present   difficulties  to  those 

concerned  in  the  collection  of  the  revenue,  in  ascertaining  the  duties 
expected  of  them." 

But  even  more  difficult  than  the  administrative  questions 
was  the  problem  of  taxing  the  lands  of  non-residents.  All 
lands  of  non-resident  proprietors  (other  than  those  in  the 
Virginia  military  district)  were  listed  for  taxation  in  the 
counties  where  they  were  situated,  and  the  tax  collected 
by  the  sheriffs  in  those  counties.  But  with  the  settlement 
of  the  state  and  the  consequent  division  of  old  and  erec- 
tion of  new  counties,  this  imposed  a  heavy  burden  upon 
non-residents,  many  of  whom  had  land  in  different  counties, 
and  in  many  cases  necessitated  the  employment  of  separ- 
ate agents  in  every  county  where  their  lands  were  situated. 
As  a  remedy  for  this  evil  the  governor  suggested13  the 
establishment  of  collection  districts  throughout  the  state 
similar  to  the  Virginia  military  district,  with  a  collector 

"Feb.  18,  1804. 

"Gov.  Mess.,  Ho.  /.,  1804-5,  p.  10. 
"Gov.  Mess.,  Ho.  J.,  1805-6,  p.  14. 


186 


FINANCIAL  HISTORY  OF  OHIO 


[186 


in  each,  to  whom  taxes  should  be  paid,  or  else  the  payment 
of  their  taxes  by  the  non-resident  proprietors  to  the  state 
treasurer,  irrespective  of  the  location  of  their  lands. 

In  response  to  this  suggestion  the  legislature  pro- 
vided14 for  the  division  of  the  state  into  six  large  collection 
districts  for  the  taxation  of  the  lands  of  non-residents,  and 
for  the  appointment  of  a  collector  in  each.  The  holdings 
of  lands  by  non-residents  were  very  large,  about  double 
those  of  residents,  and  they  paid  about  two- thirds  of  the 
taxes  into  the  state  treasury.  The  methods  of  ascertaining 
and  assessing  the  lands  were  still  very  crude,  however, 
and  the  amount  returned  for  taxation  steadily  decreased;15 
whatever  increase  there  was  took  place  in  the  third  rate 
land.  This  was  temporarily  arrested  by  the  passage  of  a 
more  careful  law  in  1810,  but  the  decline  of  the  lands  of 
non-resident  proprietors  continued  again  after  this,  partly 
no  doubt  as  the  result  of  their  sale  to  resident  proprietors. 
These  facts  are  clearly  shown  in  the  following  table: 


NUMBER  ACRES  OF  LAND  TAXED  IN  OHIO.18 


Years 

1st   Rate 

2nd  Rate 

3rd    rate 

Total 

Total  Taxes 

Non- 
resident 

u 

•a 
°« 

<u 

X 

Non- 
resident 

• 

T3 

V 

K 

i> 

cI2 

O    a) 
fc    H 

e 
« 

•e 

u 
K 

<L> 

crs 
£l 

Resident 

II 

e 

V 

•e 

'Z 

V 

K 

1808 

34,322 

112,770 

3,360,754 

1,719,379 

3,932,714 

1,309,090 

7,337,789 

3,141,240 

47,169.86 

20,331.75 

1809 

30,392 

111,413 

2,134,978 

1,827,847 

4,180,831 

1,629,572 

6,355,201 

3,568,832 

40,967.00 

23,025.00 

1810 

1811 
1812 

28,773 

100,968 

2,248,350 

1,929,600 

4,086,663 

1,538,745 

6,263,787 

7,279,081 
6,623,019 

3,569,314 

4,855,696 
4,747,012 

55,317.00 

127,927.00 
112,250.00 

30,647.00 

42,620.00 
42,888.00 

20,179 

165,596 

2,994,363 

2,591,004 

3,608,477 

1,990,413 

1813 
1814 
1815 

1816 

18,356 
17,718 

161,310 
162,652 

2,070,096 
1,758,489 

2,788,654 
2,955,352 

3,576,707 
3,583,245 

2,319,200 
2,412,295 

5,665,159 
5,359,452 

5,269,164 
5,530,299 

62,424.00 
78,726.00 

46,342.00 
80,390.00 

18,948 

154,792 

1,543,576 

2,823,269 

3,462,512 

2,635,994 

5,025,036 

5,614,056 

107,023.00 

122,875.00 

1817 

11,403 

154,089 

1,536,996 

3,490,394 

3,261,143 

2,877,595 

4,809,842 

6,522,078 

100,812.00 

130,999.00 

1818 
1819 

9,560 
9,751 

195,784 
116,387 

1,377,826 
1,310,655 

3,796,900 
3,940,615 

3,168,788 
3,022,081 

3,165,616 
4,249,551 

4,  556,174|7,  158,500 
4,352,487|8,  306,553 

73,903.00 

6S.51J.OO 

95,281.00 
100,963.00 

"Act  of  Jan.  27,  1806. 

"Between  1808  and  1809  there  was  a  decrease  of  554,996  acres,  in  spite 
of  a  large  number  of  new  entries.  Aud.  Rep.,  Ho.  /.,  1810,  p.  15. 

"The  returns  were  not  given  separately  for  residents  and  non- 
residents before  1808,  nor  after  1819,  nor  for  the  year  1815. 


1ST]  THE  GENERAL  PROPERTY  TAX  187 

Kesidents  were  required,  as  formerly,  to  enter  their 
lands  with  the  listers  of  the  townships  in  which  they  re- 
sided, but  the  inadequacy  of  this  provision  soon  became 
evident.  As  there  was  no  penalty  for  neglecting  this  duty 
a  great  deal  of  land  was  not  returned  for  taxation.  It  was 
often  discovered,  when  some  new  resident  or  purchaser 
gave  in  his  land,  that  tracts  had  not  been  charged  with  the 
tax  for  years  back,  but  no  way  was  open  to  the  auditor  to 
ascertain  these  facts  or  to  recover  the  back  taxes.17  While 
the  evasion  of  taxes  by  placing  the  land  in  a  lower  class 
was  not  as  marked  in  the  case  of  resident  as  of  non-resident 
proprietors,  still  the  third  rate  land  always  showed  the 
largest  increases.  In  the  years  1809  to  1810  there  was 
practically  no  increase  in  the  amount  of  land  owned  by 
residents.  As  a  remedy  for  these  evils  the  auditor  sug- 
gested the  making  of 

one  general  and  effectual  list both  as  it  respects  the  quantity  and  quality, 

and  render  such  list  permanent;   subject,  however,  to  such  transfers  as 
any  proprietor  may  legally  cause  to  be  made,  in  case  of  sales,  or  otherwise.18 

To  meet  these  criticisms  the  long  and  important  act 
of  1810,  "levying  a  tax  on  land",  was  passed.19  A  lister 
was  appointed  in  each  county,  who  was  to  require  of  each 
resident  listing  his  lands  for  taxation  an  oath20  that  the 
list  he  presented  was  correct.  If  the  resident  refused  to 
make  out  a  list,  then  the  lister  was  to  enter  the  lands  as 
first  rate  and  charge  them  with  a  double  tax.  All  lands 
were  to  remain  each  year  upon  the  list  at  the  same  rate 
until  sufficient  proof  was  produced  that  it  should  belong 
to  a  superior  or  inferior  class,  when  it  would  be  changed 
and  put  in  its  proper  place. 

The  county  commissioners  were  required  to  make  two 
alphabetical  lists  of  resident  lands;  to  appoint  one  collec- 
tor for  each  county,  who  should  collect  the  taxes  after 

"Gov.  Mess.  Sen.  /.,  1809,  p.  16.  See  also  message  for  1810  in  Ho.  /., 
1810,  p.  27. 

MAud.  Rep.,  Ho.  J.,  1810,  p.  16. 

"Act  of  Feb.  19,   1810.     Chase's  Stat.,  ch.  244. 

The  oath,  as  a  remedy  for  defective  legislation,  is  to  be  found  in 
Ohio  tax  laws  from  this  date  down  to  the  present  time. 


188  FINANCIAL  HISTORY  OF  OHIO  [188 

August  1.  If  the  tax  should  not  be  paid  by  November  1, 
he  was  empowered  to  sell  the  personal  property  of  the  de- 
linquent at  public  auction.  For  non-residents,  the  state 
was  divided  into  six  districts,  and  one  collector  was  ap- 
pointed in  each,  who  was  to  advertise  the  manner  of  col- 
lection, the  time  of  payment,  etc.  The  state  auditor  was  to 
make  out  the  list  of  non-resident  lands.  If  the  tax  were  not 
paid  by  December  1,  a  penalty  of  100  per  cent  was  to  be 
added.  Non-residents  were  required  to  relist  all  lands 
within  one  year,  under  oath ;  if  this  were  refused,  then  the 
auditor  was  to  enter  them  as  second  rate.  The  old  laws 
were  repealed  and  codified  in  1816,21  when  this  act  of  1810 
was  virtually  re-enacted  at  greater  length,  but  no  im- 
portant changes  were  introduced.  It  was  provided  that 
when  land  was  found  not  taxed  it  was  to  be  charged  as 
second  rate,  and  back  taxes  with  penalty  were  to  be  im- 
posed. 

In  1810  what  may  be  considered  as  the  first  general 
valuation  of  real  estate  in  Ohio  was  made.22  A  list  of  all 
the  lands  of  resident  proprietors  was  taken,  setting  forth 
the  owner's  name,  the  original  proprietor's  name,  the 
quantity  of  acres  then  listed,  and  the  rate  of  each  tract,  as 
also  the  quantity  of  acres  contained  in  the  original  tract, 
the  number  of  entry  (having  allusion  to  lands  in  the 
Virginia  military  district),  or  grant  (lands  within  the 
French  grant),  or  range,  township,  section  or  lot  (having 
reference  to  the  lands  purchased  from  the  United  States, 
the  lands  in  the  Connecticut  reserve,  in  Symmes'  purchase, 
the  Ohio  company's  purchase,  that  tract  called  the  dona- 
tion lands,  the  United  States  military  district,  and  the 
Refugee  tract).  The  list  was  very  poorly  made,  wrong  num- 
bers inserted  in  describing  the  tract,  and  so  many  errors 
introduced  that  it  led  to  great  confusion,  and  to  omission 
of  some  lands  from  the  lists  and  of  double  taxation  of 
others  in  subsequent  years. 

The  additional  burdens  necessitated  by  the  war  of 

"Act  of  Feb.  26,  1816. 

"Act  of  Feb.  19,  1810,  §  4,  5.    See  Aud.  Rep.,  in  Sen.  J.,  1815,  p.  190. 


189]  THE  GENERAL  PROPERTY  TAX  189 

1812  caused  a  considerable  increase  in  the  amount  of  taxa- 
tion. In  1813,  1814,  and  1816  the  federal  government  laid 
a  direct  tax  on  the  states,  and  gave  them  the  option  of 
assuming  the  tax  so  laid  as  a  state  obligation  or  having 
it  assessed  and  collected  by  federal  officers.  Ohio  in  each 
instance  assumed  the  tax  and  paid  it  promptly.  The  quota 
apportioned  to  Ohio  by  the  direct  tax  of  1813  was  $104,150 ; 
this  was  subject  to  a  deduction  of  15  per  cent  if  paid  by 
February  10,  1814,  or  10  per  cent  if  paid  by  May  10.23  By 
the  eighth  section  of  the  act  levying  this  tax  the  states  of 
Ohio  and  Louisiana  were  authorized  to  tax  the  lands  pur- 
chased of  the  United  States,  in  spite  of  the  previous  com- 
pact with  these  states  that  such  lands  were  not  to  be  taxed 
until  five  years  after  their  purchase.  In  order  to  take 
advantage  of  the  discount  offered  for  prompt  payment  of 
the  tax,  a  temporary  loan  of  $55,000  was  made,  which  was 
paid  the  following  year  out  of  increased  taxation. 

The  House  Committee  on  Finance  estimated24  that  an 
increase  of  50  per  cent  on  the  present  rates  of  tax  for  land 
heretofore  subject  to  taxation,  with  the  existing  rates  of 
tax  applied  to  land  newly  subjected  to  taxation,23  would 
probably  yield  $110,545  for  the  year  1814;  as  the  current 
expenses  of  the  state  government  were  estimated  at  only 
$37,500,  this  would  leave  a  surplus  after  paying  off  the  loan 
of  $55,000.  The  same  committee  disapproved  any  change 
in  the  system  of  taxation  in  the  direction  of  taxing  personal 
property  or  banking  corporations.20  The  rate  of  taxation 
was  raised  about  50  per  cent,  being  increased  from  $1.25 
per  100  acres  in  1813  to  $2.00  in  1814  for  first  rate  land.27 

aAct  of  Congress,  Aug.  2,  1813.  Ohio  paid  her  quota  before  the  first 
mentioned  date,  thereby  reducing  it  to  $88,528. 

MRep.,  Jan.  18,  1814,  Ho.  J.,  1814  p.  142. 

"Under  act  of  Congress  of  Aug.  2,  1813,  as  cited  above.  The  legisla- 
ture, however,  did  not  take  advantage  of  the  permission  thus  given,  as  it 
was  felt  it  would  involve  a  breach  of  contract  with  the  purchasers  of  these 
lands. 

"Ibid.,  p.  179. 

"See  table  on  p.  182.  The  rates  on  other  grades  of  land  were  changed 
proportionately. 


190  FINANCIAL  HISTORY  OF  OHIO  [190 

In  1814  the  state  again  met  the  second  direct  tax  by  means 
of  a  temporary  loan  of  f  104,000  and  a  further  increase  in 
the  rates  of  taxation,  from  $2.00  to  $3.60  for  first  rate  land. 
In  1816  a  third  loan  of  $32,000  was  raised,  but  this  time  it 
was  found  possible  to  reduce  the  tax-rate  slightly  to  $3.00 
on  first  rate  land,  as  the  taxes  were  now  so  lucrative.  The 
amounts  raised  by  taxation  during  the  five-year  period 
from  1814  to  1818  were  as  follows : 

Year                                                      Resident  Non-resident 

1814 $  80,390  $  78,726 

1815 

1816 122,875  107,023 

1817 130,999  100,812 

1818 95,281  73,903 

Attention  had  now  been  directed  to  the  tax  system  and 
as  its  defects  became  more  apparent  a  movement  for  a 
change  began.  On  January  11, 1815,  the  Senate  passed  a  res- 
olution asking  the  state  auditor  to  report  as  to  "the  difficul- 
ties and  embarrassments  that  exist  in  the  present  system  of 
taxation"  and  to  suggest  "a  more  perfect  system,  in  whole 
or  in  part."  The  auditor  could  find  no  defect  in  the  law, 
though  he  admitted  that  errors  did  occur  in  the  listing  of 
the  land  of  resident  proprietors  for  taxation,  which  he  at- 
tributed to  the  negligence  of  the  listers  or  of  the  proprietors 
themselves;  in  the  case  of  non-residents  he  thought  the 
system  would  be  improved  by  permitting  non-residents  to 
pay  their  taxes  directly  into  the  state  treasury.28 

A  more  serious  study  was  made  of  the  situation  a  few 
years  later  by  the  standing  committee  of  Finance  in  the 
House,  for  which  the  chairman,  Mr.  Kelly,  presented  a 
report  which  criticized  existing  methods  and  yet  had  no 
very  far-reaching  remedies  to  offer.29  They  were  convinced 
that  many  defects  existed  in  the  present  system,  and 
thought  the  most  equitable  and  simple  method  of  taxation 
was  to  levy  a  tax  on  lands  in  proportion  to  their  value. 
But  on  account  of  the  expense  and  the  constantly  chang- 

MAud.  rep.,  Jan.  13,  1815.    Sen.  J .,  1815,  pp.  190-196. 
"Ho.  J.,  1820,  pp.  105-108. 


191]  THE  GENERAL  PROPERTY  TAX  191 

ing  values  of  land  all  over  the  rapidly  growing  state,  any 
system  which  involved  the  frequent  valuation  and  equaliza- 
tion of  land  did  not  seem  desirable.  It  was  also  impolitic 
as  well  as  unjust  to  tax  improvements.  The  committee 
did  not  think  a  perfect  remedy  could  be  devised  for  the 
existing  inequalities  in  the  assessment  of  lauds,  but  sug- 
gested the  creation  of  a  fourth  class  and  the  entering  of 
certain  tracts  as  fourth  rate.  The  present  system  was 
found  to  be  too  complicated  and  intricate,  especially  in  the 
matter  of  making  transfers,  where  errors  often  removed 
many  tracts  of  land  from  the  lists  both  of  resident  and  of 
non-resident  proprietors,  while  other  tracts  appeared  in 
both  lists  and  were  doubly  taxed.  The  remedies  suggested 
did  not  go  to  the  root  of  the  matter;  they  were  that  all 
taxable  lands,  and  transfers,  should  appear  on  the  tax  list 
of  the  county  in  which  they  were  situated;  that  the  taxes 
be  payable  either  in  the  home  county  or  at  the  state  treas- 
ury, at  the  option  of  the  owner ;  and  that  the  office  of  non- 
resident collector  be  abolished. 

Later  in  the  session  was  passed  an  act,30  "levying  a 
tax  on  land'',  embodying  these  and  other  suggestions,  the 
first  important  law  relating  to  the  system  of  taxation  that 
had  been  passed  since  1810.3]  This  was  a  long  act  of  63 
sections,  repealing  and  codifying  previous  acts,  but  not 
introducing  any  change  in  principle.  The  duties  of  county 
auditors  and  collectors,  and  of  the  auditor  of  state,  were 
prescribed  more  carefully,  and  in  greater  detail;  and  the 
county  auditor  was  to  be  elected  annually.  To  secure 
more  certainly  the  listing  of  all  lands,  it  provided  that  if 
a  proprietor  should  refuse  or  neglect  to  furnish  a  list,  the 
county  auditor  should  charge  his  land  as  first  rate  until 
he  should  furnish  a  list  and  prove  that  the  land  was 
in  the  wrong  class.  An  amendment  of  February  25,  1824, 
provided  that  non-resident  proprietors  might  pay  their 
taxes  to  the  state  auditor,  instead  of  to  the  county  officials. 

*°Act  of  Feb.  8,  1820.    Chase's  Statutes,  472. 

"An  unimportant  act  of  Feb.  8,  1819,  had  reduced  the  salaries  of  col- 
lectors of  taxes  on  lands  of  non-residents  by  25  per  cent. 


192  FINANCIAL  HISTORY  OF  OHIO  [192 

Below  is  given  a  copy  of  the  form  of  returns  used  by  the 
commissioners  in  the  listing  of  land  for  taxation  under  the 
act  of  1820  ;32  it  is  difficult  to  believe  it  could  have  been 
satisfactory,  it  is  so  brief  and,  it  would  seem,  inadequate. 
The  change  in  the  tax  system  met  with  hearty  commenda- 
tion, however,  the  state  auditor  citing  the  greater  central- 
ization of  power  and  responsibility  in  the  county  auditors 
as  the  chief  advantage.33 

It  has  brought  into  taxation  very  many  tracts  of  land  that  had  never  before 
been  on  the  duplicates,  and  many  others  that  were  either  lost  by  transfers 
from  non-residents  to  residents,  from  one  county  to  another,  or  from 
intention  or  negligence  in  the  commissioners. 

No  further  changes  were  made  until  the  tax  law  of  1825 
introduced  an  entirely  different  system. 

ASSESSMENT  AND  COLLECTION  OF  TAXES. 

Owing  in  part  to  the  inefficiency  of  governmental 
legislation  and  administrative  machinery,  and  in  part  to 
the  wide  dispersion  of  a  scattered  population  over  a  large 
territory,  the  early  returns  of  taxable  property  were 
loosely  and  vaguely  made,  and  the  assessments  tardily 
and  imperfectly  collected.  "In  a  word,  our  fiscal  estab- 
lishment is  as  destitute  of  strength  and  circumspective 
activity,  as  it  is  of  necessary  checks."34  The  defalcations, 
or  delinquencies,  in  the  assessed  taxes  were  large  through- 
out the  whole  of  the  early  period,  under  the  system  of  the 
land  tax.  In  1806,  they  amounted  to  $2,000  in  a  total  of 
|50,000,  or  4  per  cent  ;35  in  1809,  they  were  $7,500  in  a  total 
of  $37,000,  or  20  per  cent.38  All  land  was  grouped  in  three 
classes,  for  purposes  of  taxation,  and  to  each  an  arbitrary 
value  was  assigned,  on  which  different  rates  were  imposed. 
There  was  naturally  an  irresistible  temptation  to  take  land 

82The  return  called  for  the  taxpayer's  name,  the  quantity  of  land,  on 
what  water  course  and  county,  by  what  title,  what  rate,  amount  of  tax. 

"Aud.  rep.,  Ho.  J.,  1821,  p.  62. 

"Rep.  of  joint  com.  to  examine  books  and  accounts  of  auditor  and 
treasurer.  Sen.  J.  1804,  P-  201. 

*"Aud.  rep.  Sen.  J.,  1805-6,  p.  16. 

**Aud.  rep.,  Ho.  J.,  1810,  p.  267. 


193]  THE  GENERAL  PROPERTY  TAX  193 

out  of  the  higher  and  put  it  into  the  lower  classes,  espe- 
cially as  the  owner  practically  listed  his  own  land.37  Much 
land  also  escaped  taxation  altogether,  as  there  was  no 
penalty  for  omitting  it. 

But  not  merely  was  there  laxity,  with  respect  to  the 
assessment  of  taxes;  there  was  equal  looseness  in  regard 
to  their  collection.  Taxes  were  collected  by  district  col- 
lectors and  by  them  paid  into  the  county  treasuries,  which 
then  remitted  to  the  state  treasury  the  share  due  it.  There 
was,  however,  no  way  of  compelling  the  payment  from  the 
counties  to  the  state  of  its  share,  and  as  the  counties  seem 
for  several  years  to  have  anticipated  or  overdrawn  their 
funds,  they  could  not  respond  to  the  calls  made  upon  them. 

The  state  must  therefore  wait  until  such  counties  have  a  surplus  of  money 
in  their  treasuries,  and  are  willing  to  return  the  sums  thus  improperly 
made  use  of ;  which  ought,  of  right,  to  have  been  punctually  paid  over 
for  the  use  of  the  state,  as  required  by  law.88 

Several  counties  were  at  this  time  indebted  to  the  state 
treasury  for  considerable  sums. 

No  provision  was  made  for  the  collection  of  infor- 
mation as  to  the  sums  expended  for  county  and  township 
purposes,  but  the  governor  in  1820  estimated  that  they  ex- 
ceeded three-fourths  of  all  the  taxes  paid.39  In  the  same 
year  the  standing  Committee  on  Finance  of  the  House 
reported  that  the  system  of  taxation  was  too  complicated 
and  that  the  assessments  were  unequal,  and  suggested  as 
remedies  that  all  lands  should  be  assessed,  transfers  made, 
and  taxes  collected  in  the  counties  in  which  the  lands  lay, 
and  that  the  office  of  non-resident  collector  be  abolished.40 
New  lists  were  made  the  following  year,  and  corrected 
much  of  the  confusion  and  mistakes  of  the  lists  of  1810.41 


I7Gov.  Mess.,  Ho.  J.,  1810,  p.  27.  Aud.  rep.,  ibid.,  p.  15. 

**Aud.  rep.,  Ho.  J.,  1810,  p.  260.  Cf.  also  Aud.  rep.,  Ho.  J.,  1811,  p.  18. 

"Gov.  Mess.,  Ho.  J.,  1820,  p.  11. 

MHo.  J.,  1820,  pp.  105-108. 

"Ho.  J.,  1821,  p.  14. 


194  FINANCIAL  HISTORY  OF  OHIO  [194 

EXEMPTIONS. 

The  first  exemption  made  by  the  tax  laws  of  the  state 
of  Ohio  was  contained  in  the  act  of  February  18,  1804,42 
which  provided  that  lands  purchased  from  the  United 
States  after  June  30,  1802,  should  not  be  taxed  for  5  years 
from  the  date  of  sale.  In  the  act  of  February  19,  1810, 
there  was  contained  the  statement  that  "all  lands  within 
this  state  and  not  exempted  by  any  contract  between  the 
United  States  and  this  state  shall  be  subject  to  taxation". 
In  the  tax  law  of  February  26, 1816,  the  provision  "and  not 
exempted  by  any  law  of  this  state",  was  added;  but  as  no 
exemptions  were  made  by  the  laws  of  the  state  until  1821, 
this  clause  was  meaningless.  In  that  year  the  first  specific 
exemptions  from  taxation  were  made  by  act  of  February 
2, 1821.43  This  act  declared  that 

all  tracts  of  lands  with  the  houses  and  improvements  not  exceeding 
fifteen  acres,  the  title  of  which  is  vested  in  any  person  or  persons  for  the 
use  and  in  trust  for  any  religious  society  within  this  state,  and  occupied 
solely  by  such  society,  as  a  meeting  house  or  burying  ground,  shall  here- 
after remain  free  from  taxation,  for  state,  road,  township  or  county 
purposes;  as  shall  all  land  which  is  the  property  of  any  academy,  college, 
or  other  seminary  of  learning,  which  now  is  or  hereafter  may  be  estab- 
lished within  the  state. 

The  modern  practice  of  exemption  by  specific  enumer- 
ation may  be  said  to  have  been  introduced  by  the  act  of 
February  25,  1824,  which  added  considerably  to  this  list: 
it  exempted  lands  of  any  religious  society,  not  exceeding 
fifteen  acres;  Congress  lands  for  five  years  after  date  of 
sale;  all  lands  the  property  of  any  college  or  academy  of 
learning;  the  property  of  the  state;  all  land  included 
within  the  plat  of  any  town  that  now  is  or  may  hereafter 
be  regularly  laid  out  and  recorded  according  to  law.  By 
this  last  provision,  town  lots  would  seem  to  have  been 
reserved  for  local  taxation,  a  notable  step  in  the  segrega- 
tion of  the  sources  of  revenue  to  have  been  taken  thus 


"Chase,  Statutes  of  Ohio,  I,  ch.  45. 
"Chase,  Statutes,  I,  ch.  510. 


195]  THE  GENERAL  PROPERTY  TAX  195 

early.44  This  separation  was,  however,  abandoned  the  next 
year  when  the  general  property  tax  was  introduced  as  a 
means  of  raising  state  revenue. 

The  list  of  exempted  property  was  still  further  ex- 
tended by  the  act  of  February  2,  1825.  This  enumerated 
the  land  and  improvements  of  any  religious  society  (not 
over  15  acres)  and  of  any  school  or  college,  when  used 
exclusively  for  educational  or  religious  purposes;  the 
lands  and  improvements  owned  by  any  county  for  the  use 
of  the  poor  (not  exceeding  200  acres) ;  all  public  grounds 
and  buildings;  lands  sold  by  Congress  for  five  years  after 
sale; 

also  one  cow  where  the  owner  has  no  other  taxable  property;  all  grist 
and  saw-mills ;  all  woolen  and  cotton  factories ;  all  manufactories  of  paper, 
salt,  iron,  or  glass,  all  distilleries,  tanneries,  and  all  nail  factories. 

These  exemptions  show  clearly  the  progress  which  manu- 
factures had  made  in  Ohio,  and  what  industries  it  was 
desired  to  foster. 

SALE  OF  LAND  FOR  NON-PAYMENT  OF  TAXES,  AND  REDEMPTION. 

The  early  laws  are  full  of  severe  provisions  and  penal- 
ties directed  against  delinquent  tax  payers.  The  collec- 
tors of  the  taxes  were  paid  collection  fees  of  4  per  cent  of 
the  taxes  on  the  property  of  non-resident  proprietors,  and 
6  per  cent  of  the  taxes  on  the  property  of  residents.  That 
it  was  extremely  difficult  to  collect  the  taxes,  especially 
in  the  case  of  non-residents,  is  abundantly  shown  by  the 
amount  of  defalcations  in  the  assessed  taxes  reported  from 
year  to  year.  In  a  barter  economy,  such  as  still  prevailed 
to  a  considerable  extent  in  Ohio  at  this  time,  even  the 
moderate  taxes  seemed  a  heavy  burden.  In  1806  it  was 
estimated  that  the  defalcations  would  amount  to  about 
5  per  cent.45  The  amount  of  money  paid  into  the  state 
treasury  in  1809  was  $28,270,  and  the  defalcations  $7,518, 

"By  the  act  of  February  23,  1824,  all  inlots  and  outlots  in  towns  with 
improvements  and  all  other  houses  over  one  hundred  dollars  in  value 
were  made  subject  to  county  levies,  and  the  rates  were  fixed  at  one-half 
of  one  per  cent  of  the  value. 

"Sen.  J.,  1805-6,  p.  16. 


196  FINANCIAL  HISTORY  OF  OHIO  '  [196 

or  one  fifth  of  the  total.46  In  1814  the  amount  of  taxes 
levied  was  f  162,196,  while  the  amount  collected  was  $132,- 
403.  In  1816  the  amount  levied  was  $229,897,  while  only 
$187,459  was  collected.  In  1819  the  figures  were  $179,476 
and  $129,519.  And  the  same  difficulty  prevailed  through- 
out the  entire  period  1802-1825.  The  worst  offenders  in 
this  respect  were  the  non-resident  proprietors,  most  of 
whom  probably  held  their  land  for  purely  speculative  pur- 
poses. 

Accordingly  we  find  that  Ohio  began  very  early  to 
provide  for  the  collection  of  delinquent  taxes  by  authoriz- 
ing the  sale  of  property  for  back  taxes.  The  first  law  on 
this  subject  was  the  territorial  law  of  May  1,  1798,  which 
provided  that  arrears  of  taxes  should  bear  10  per  cent  in- 
terest, and  authorized  the  collector  to  sell  at  public  auction 
so  much  of  the  land  as  would  pay  the  taxes.  This  was  re- 
peated the  following  year,47  and  extended  to  the  lands  of 
non-residents : 

If  any  person  does  not  pay  his  taxes  by  the  first  of  October,  the  sheriff 
may  distrain  his  goods  and  chattels,  and  if  the  taxes  are  not  paid  within 
twenty  days,  the  things  shall  be  sold  at  public  auction  and  the  amount 
above  the  taxes  shall  be  returned  to  the  owner.*3 

If  goods  and  chattels  to  an  amount  sufficient  to  pay  the 
taxes  could  not  be  found,  then  part  of  the  land  should  be 
sold.  Evidently  this  law  proved  too  harsh,  for  in  180049 
the  further  sale  of  non-residents'  lands  was  postponed 
until  March  20,  1801.  In  180250  the  law  was  re-enacted  in 
a  still  stronger  form :  if  the  tax  was  not  paid  by  the  first 
of  October,  the  sheriff  was  to  sell  enough  personal  prop- 
erty to  pay  the  tax ;  if  no  personal  property  could  be  found, 
a  penalty  of  50  per  cent  was  to  be  added,  and  if  this  were 
not  paid  by  the  first  of  November,  enough  land  should  be 
sold  to  pay  the  tax  and  the  penalty. 

In  1804  the  first  state  law  on  the  subject  was  passed,51 

"Sen.  J.,  1810,  p.  208. 
47 Act  of  Dec.  19,  1799. 
"Ibid,  sec.  12. 
*Act  of  Dec.  9,  1800. 
""Act  of  Jan.  23,  1802. 
"Feb.  18,  1804. 


197]  THE  GENERAL  PROPERTY  TAX  197 

but  in  less  severe  form  than  the  territorial  laws,  which  had 
meanwhile  prevailed.  If  the  tax,  with  penalty,  was  not 
paid  within  one  year  from  the  listing  of  the  property, 
the  collector  was  to  advertise  a  public  sale  in  the  county 
and  in  five  other  places,  and  to  sell  enough  land  at  public 
auction  to  pay  the  tax  and  penalty.  A  slight  variation  was 
introduced  in  180652 — if  the  taxes  of  a  non-resident  were 
not  paid  by  December,  the  collector  was  to  sell  the  land 
to  that  person  who  would  pay  the  tax  and  interest  for  the 
smallest  quantity  of  land.  One-half  of  the  tax  was  to  go 
to  the  county  within  which  the  land  lay,  and  one-half  to 
the  state.53  By  the  act  of  181054  lands  returned  delinquent, 
on  which  no  tax  was  paid  for  three  years,  were  to  be  sold 
at  public  auction  to  the  highest  bidder. 

For  the  next  decade  there  was  no  further  legislation 
on  the  subject.  Indeed,  after  the  War  of  1812  and  the 
consequent  "hard  times"  the  system  broke  down  com- 
pletely. It  was  found  very  difficult  to  collect  the  taxes 
and  still  more  so  to  find  purchasers  for  delinquent  lands. 
Acts  were  passed  in  1815,  1818,  and  1819,55  to  postpone 
the  sale  of  lands  for  non-payment  of  taxes  for  one  year, 
and  in  182056  for  two  years.  The  real  reason  for  the  break- 
down of  the  system,  however,  lay  in  the  laws  providing  for 
the  redemption  of  lands  sold  for  taxes  and  in  the  insecure 
title  given  to  the  purchasers  of  such  land. 

Although  taxes  were  levied  on  lands,  for  the  support  of  the  state  govern- 
ment, .yet  they  were  so  poorly  paid  and  the  sales  for  taxes  were  so  loosely, 
carelessly  made  by  the  collectors,  that  a  tax  title  on  land  was  good  for 
nothing.  The  more  of  them  one  had,  the  poorer  he  would  be.07. 

A  brief  survey  of  the  laws  providing  for  the  redemption  of 
lands  sold  for  taxes  will  make  this  point  clear. 

By  the  territorial  law  of  180258  lands  sold  for  taxes 
were  to  revert  to  the  owner  on  payment,  within  one  year, 

"Jan.  27,  1806. 

The  share  of  each  is  given  in  the  table  on  p.  184. 

"Act  of  Feb.  19,  1810. 

"Feb.  14,  1815;  Jan.  29,  1818;  Feb.  8,  1819. 

"Feb.  8,  1820. 

"Atwater,  History  of  Ohio. 

"Act  of  Jan.  23,  1802. 


198  FINANCIAL  HISTORY  OF  OHIO  [198 

of  the  tax,  costs,  and  60  per  cent  penalty;  the  purchaser 
was  to  have  his  money  refunded.  The  laws  of  1804,  1806, 
and  180759  provided  for  the  redemption  of  lands  sold  for 
taxes  and  belonging  to  minors,  feme  coverts  [sic],  insane 
persons,  or  persons  in  captivity,  within  one  year  by  pay- 
ment of  the  tax,  interest,  and  penalties.  While  the  act  of 
180860  was  slightly  more  severe  on  the  delinquent  tax- 
payer, yet  it  made  the  position  of  the  purchaser  of  a  tax 
title  still  more  insecure  and  removed  the  incentive  for  the 
purchase  of  such  lands.  It  provided  that  the  owner  might 
redeem  his  land,  if  sold  for  taxes,  within  one  year  by  paying 
the  tax,  costs,  and  100  per  cent  damages.  The  purchaser 
of  the  tax  title  must  claim  his  money  back  within  six 
months;  after  six  months  and  up  to  three  years  he  must 
produce  the  certificate  of  sale.61  The  purchaser,  more- 
over, was  saddled  with  the  tax  of  the  following  year.  The 
only  wonder  is  that  under  such  a  system  there  were  any 
purchasers  of  delinquent  lands.  The  purchase  of  tax- 
titles  was  a  pure  speculation,  involving  a  certain  loss  if 
unsuccessful,  and  a  title  of  doubtful  validity  if  successful. 
No  purchaser  could  afford  to  risk  making  any  improve- 
ments on  land  so  held,  and  the  interests  of  all  concerned 
suffered  under  such  a  system.  No  further  change  was 
made  in  the  law  governing  this  subject  until  1822.62 

The  act  of  January  30,  1822,  "for  the  sale  of  lands 
for  taxes",  completely  reversed  the  easy-going,  slip-shod 
methods  of  the  earlier  laws,  and  by  giving  the  purchaser  of 
delinquent  lands  a  valid  title  stimulated  the  purchase  of 
such  lands  and  brought  about  the  prompt  payment  of 
taxes.  First  of  all  the  books  were  cleared  of  the  accumu- 
lation of  back  taxes:  if  arrearages  of  land  taxes  be  paid 
by  December  10,  it  was  provided  that  all  penalties  should 

"Feb.  18,  1804;  Jan.  27,  1806;  Jan.  31,  1807. 

"Feb.  2.2,  1808. 

"Apparently  he  lost  his  money  unless  he  demanded  it  within  three 
years  and  produced  the  certificate  of  sale. 

"The  laws  of  Jan.  4,  1816,  and  Feb.  26,  1816,  sec.  34,  relate  to  the  mode 
of  redeeming  lands  of  minors,  feme  coverts  [sic],  insane  persons. 


199]  THE  GENERAL  PROPERTY  TAX  199 

be  remitted.63  If  this  was  not  done,  the  law  then  pre- 
scribed a  careful  procedure  for  listing,  advertising,  and 
selling  such  lands.  After  advertising,  a  judgment  of  the 
land  to  the  state  is  to  be  secured  from  the  court  of  com- 
mon pleas.  The  purchaser  of  such  lands  at  the  tax  sale 
shall  receive  a  deed  from  the  auditor  which 

shall  be  received  in  all  courts  in  this  state  and  elsewhere,  as  prima  facie 
evidence  of  good  title  to  the  lands  mentioned  therein,  nor  shall  the  title 
conveyed  by  such  deed,  be  invalidated  or  affected 

by  any  error  in  charging  or  collecting  the  tax  or  in  the 
tax  sale. 

This  act  cleared  up  the  old  difficulty  of  disputing  the 
validity  of  tax  sales  on  technical  errors,  and  gave  a  secure 
title  to  the  purchaser.  The  process  of  correcting  the  lists 
of  delinquent  lands  was,  however,  a  slow  one.  Often  the 
owner  did  not  know  that  lands  were  on  the  delinquent  list 
until  they  were  declared  forfeited  and  advertised  for  sale, 
and  in  many  cases  lands  on  which  taxes  had  been  paid 
were  thus  treated,  owing  to  errors  in  recording.  In  many 
cases,  however,  the  taxes  had  been  evaded  or  unpaid.  For- 
feited lands  were  exposed  to  sale  in  the  neighborhood 
where  they  were  situated,  when  "persons  from  almost  every 
part  of  the  county,  came  forward,  either  to  correct  or  pay 
the  taxes  on  their  lands  which  stood  in  arrears".64 

In  order  to  hasten  the  clearing  of  the  docket  of  these 
interminable  delinquencies,  the  act  of  January  18,  1826, 
enacted  that  all  lands  upon  which  taxes  had  not  been  fully 
paid  up  to  January  1,  1826,  should  be  deemed  delinquent, 
and  that  all  penalties  and  delinquencies  must  be  paid  by 
August  1.  This  brought  forth  a  protest  from  the  non- 
resident, as  well  as  the  resident,  owners,  and  the  legisla- 
ture was  compelled  to  recede  from  this  position;  twice 
they  extended  the  time  for  the  payment  of  the  taxes  and 
penalties.  On  December  15,  1826,  there  still  remained  of 
lands  forfeited  to  the  state  for  the  non-payment  of  taxes, 

"The  act  of  Dec.  15,  1823,  suspended  this  for  four  and  one-half  months 
because  of  many  errors  in  the  lists  of  delinquent  lands;  that  is,  until  the 
-errors  could  be  corrected. 

"Aud.  rep.,  Dec.  15,  1826.    Ho.  /.,  1827,  p.  84. 


200  FINANCIAL  HISTORY  OF  OHIO  [200 

not  yet  redeemed,  604,590  acres;  this  represented  unpaid 
taxes  to  the  amount  of  $127,912.  The  interests  involved 
were  sufficiently  powerful  to  compel  still  further  conces- 
sions, and  on  January  29,  1829,  there  was  passed  a  bill 
remitting  all  penalties  at  that  time  due,  but  requiring  the 
payment  of  the  taxes.  This  ended  the  struggle  over  the 
delinquencies  of  the  land  taxes  under  the  old  system. 

CRITICISMS  OF  THE  EXISTING  TAX  SYSTEM. 

In  referring  to  this  system  of  taxation,  as  it  existed 
between  1803  and  1825,  Solomon  P.  Chase  subsequently 
expressed  himself  as  follows:65 

That  this  system  was  inconvenient  and  inequitable,  is  very  manifest.  The 
assessment  of  taxes  for  state  and  county  purposes,  on  different  descrip- 
tions of  property,  was  productive  of  no  little  embarrassment  and  difficulty; 
while  the  assessments  according  to  rates  and  not  according  to  value, 
resulted  in  great  and  grievous  inequality,  which  became  more  and  more 
conspicuous  and  vexatious  with  the  progressive,  but  very  unequal  in- 
crease, in  the  value  of  land. 

But  an  even  more  important  reason  leading  to  the 
reform  of  the  existing  system  of  taxation  was  the  necessity 
of  larger  revenues.  In  1825  the  work  of  building  canals 
was  entered  upon  by  the  state,  and  for  this  purpose  and 
the  payment  of  interest  on  loans,  it  was  necessary  to  in- 
crease the  revenues  of  the  state.  The  governor,  in  his 
message  for  this  year,66  suggested  that  the  whole  product 
of  the  land  tax  be  made  payable  to  the  state  treasury  for 
state  purposes,67  and  that  additional  taxes  be  imposed  as 
follows:  on  judicial  processes  in  civil  cases,  on  capital 
employed  in  trade,  on  pleasure  and  travel  carriages,  on 
brass  and  other  clocks  and  on  gold  and  silver  watches ;  the 
product  of  such  taxes  in  whole  or  in  part  to  be  made  paya- 
ble to  the  county  treasury  of  the  respective  counties  where- 
in the  tax  is  levied.  That  part  of  the  message  which  related 
to  the  revenue  of  the  state  was  referred  to  a  joint  com- 
mittee of  the  legislature,  which  brought  in  a  lengthy  re- 

"Gov.  Mess.,  Jan.  2,  1860.  Exec.  Doc.,  1859,  II,  29. 

"Gov.  Mess.,  Ho.  ].,  1825,  p.  14. 

"One-fifth  was  paid  to  the  counties  in  which  the  tax  was  collected. 


201]  THE  GENERAL  PROPERTY  TAX  201 

port68  and  a  bill  embodying  the  principle  of  the  general 
property  tax.  The  report  reads  like  that  of  a  modern  tax 
commission  and  is  of  such  importance  as  to  justify  quoting 
at  some  length. 

The  present  system  was  adopted  by  the  first  territorial  legislation  at 
their  session  of  1/99,  and  went  into  operation  in  1800,  when  the  popula- 
tion was  about  40,000  and  the  settlements  recently  made At  this  early 

period  of  the  settlement  of  the  country,  the  improvements  on  land  and 
personal  property  were  inconsiderable,  and  a  tax  on  lands  alone  could  be 
relied  on  for  support  of  the  government.  Under  the  system  then  as  now, 
the  lands  were  to  be  entered  for  taxation,  as  ist,  2nd,  and  3rd  rate,  and 
the  relative  fertility  of  the  soil  alone  fixed  the  rate  in  which  it  was  to 

be  entered,  without  regard  to  situation  or  any  local  advantages The 

system  therefore,  though  defective  in  detail,  was  at  the  time  of  its  adop- 
tion, and  in  the  early  stage  of  the  government,  perhaps  best  suited  to  the 
circumstances  of  the  country.  The  unparalleled  increase  of  the  population, 
and  progress  of  improvement  in  the  state,  together  with  a  change  of 
lands  from  non-resident  to  resident  proprietors,  have  produced  almost 
an  entire  change ;  and  in  the  landed  property  a  different  state  of  things. 
Towns  have  grown  up;  the  benefit  accruing  from  vicinity  to  these — to 
navigable  streams — to  public  highways — water  privileges — and  other  local 
advantages,  have  produced  an  inequality  in  the  value  of  lands  on  which  the 
present  system  does  not  nor  cannot  operate. ..  .The  defects  of  the  present 
system  of  revenue  will  be  examined  in  the  following  order: 

ist.     The  injustice  done  the  state  from  improper  entries. 

2nd.  The  inequality  of  the  revenue  paid  by  the  different  counties 
of  the  state. 

3rd.     The  inequality  of   taxes  on   individuals. 

4th.  The  difficulties  occasioned  by  subjecting  different  objects  to 
taxation  for  county  and  state  purposes. 

Under  the  first  head  the  committee  pointed  out  the 
steady  transference  of  land  from  the  first  and  second  rates 
to  third  rate ;  in  the  year  1820  only  225,082  acres  had  been 
entered  as  first  rate,  while  the  committee  estimated  that  at 
least  2,000,000  acres  should  have  been  put  in  that  class. 
By  reason  of  the  improper  entries,  which  were  an  inevit- 
able result  of  permitting  owners  to  list  their  own  lands, 
they  estimated  that  the  state  was  defrauded  of  over 
$31,000  in  taxes  in  1820. 

As  between  counties  there  was  similar  inequality ;  for 
instance,  the  taxes  levied  in  1824  for  state  purposes  in 

*Ho.  ].,  1825,  pp.  153-156. 


202  FINANCIAL  HISTORY  OF  OHIO  [202 

Hamilton  county  amounted  to  $2,080,  while  Athens 
county,  with  less  than  one-thirteenth  the  value  of  real 
property,  paid  taxes  to  the  amount  of  $2,142.69 

The  inequality  of  taxes  on  individuals  of  the  same 
county  was  equally  marked.  As  all  land  was  rated  accord- 
ing to  its  fertility  only,  it  might  happen  that  one  tract  of 
land  of  1000  acres  would  be  worth  $2000  as  agricultural, 
while  another  tract  of  the  same  size  and  fertility,  but  sit- 
uated near  a  town  or  river,  would  be  worth  $20,000,  yet 
both  be  taxed  exactly  the  same  amount,  say  $17.50. 

The  difficulties  occasioned  by  subjecting  different  objects  to  taxation 
for  county  and  not  state  purposes,  are  the  creation  of  many  unnecessary 
agents  as  collectors,  assessors,  and  listers,  producing  inequality  in  the  value 
of  property  in  different  townships  and  causing  much  unnecessary  expense. 
Besides  it  produces  discontent  and  unpleasant  feelings  between  the  people 
of  the  towns  and  country,  and  a  great  inequality  in  the  assessment  of 
taxes. 

II.       THE   GENERAL   PROPERTY    TAX,    1825-1851. 

In  accordance  with  the  suggestions  contained  in  this 
report  and  in  the  governor's  message,  a  bill  was  intro- 
duced into  the  legislature  "establishing  an  equitable  mode 
of  levying  the  taxes  of  this  state",  which  was  promptly 
enacted  into  law.71  This  act  marks  the  beginning  of  the 
general  property  tax  in  the ^_sta.te  .oflfSaQl  Tt  abolished 
the  old  system  of  land  classification  and  at  the  same  time 
introduced  a  number  of  new  features:  the  taxation  of  all 
property  for  state  purposes,  instead  of  land  alone;  the 
valuation  of  real  property  at  its  true  value  in  money ;  the 
specific  enumeration  of  all  the  forms  of  property  to  be 
taxed;  the  establishment  of  boards  of  equalization,  and 
the  other  machinery  of  the  general  property  tax.  Owing 
to  its  importance  the  chief  features  of  the  law  deserve  to 
be  presented  with  some  fulness. 

"Hamilton  county  contained  the  prosperous  town  of  Cincinnati,  while 
Athens  county  was  agricultural.  Several  other  instances  were  cited. 

70Rep.  of  Com.,  p.  156.  Now  that  the  policy  of  segregating  the  sources 
of  state  and  local  revenue  has  been  undertaken,  it  is  interesting  to  read 
this  early  argument  against  such  a  principle. 

"Act  of  Feb.  3,  1825.    Chase,  Statutes,  II,  1476. 


203]          THE  GENERAL  PROPERTY  TAX  203 

All  lands,  all  in-lots  and  out-lots  in  towns  with  the 
buildings  thereon,  and  buildings  in  towns  on  lands  granted 
by  Congress  for  school  or  for  religious  purposes,  not  used 
for  educational  or  religious  purposes;  all  dwelling  houses 
of  the  value  of  $200  other  than  those  on  town  lots;  the 
capital  of  all  merchants  and  exchange  brokers  employed 
within  the  state;  all  horses,  mules,  and  asses,  and  neat 
cattle  of  three  years  old  and  upwards,  except  such  as  were 
exempt ;  and  all  pleasure  carriages  over  the  value  of  $100, 
were  declared  to  be  subject  to  taxation.  The  chief  de- 
pendence, it  will  be  observed,  is  still  real  property;  the 
amount  of  personal  property  actually  valued  was  still 
small,  and  the  list  of  exempted  property  was  very  large, 
including  not  only  land  and  buildings  used  for  religious 
or  educational  purposes,  but  mills  and  factories  almost 
without  exception.72  Merchants  and  brokers  were  ar- 
ranged in  certain  classes  by  the  associate  judges,  according 
to  their  capital,  and  were  taxed  according  to  the  class, 
without  reference  to  the  amount  of  capital  actually  em- 
ployed by  different  members  of  the  same  class.  Lands, 
town  lots  and  buildings,  dwelling  houses,  and  carriages 
were  to  be  valued  on  actual  view  at  their  true  value  in 
money;  but  horses,  mules  and  asses  were  assessed  with 
appraisement  at  $40  each  and  neat  cattle  at  $8.  It  will  be 
seen  that  the  act  of  1825  initiated,  rather  than  established, 
the  rule  of  valuation  and  of  taxation  according  to  value. 

The  modes  of  levying,  assessing,  and  collecting  the 
taxes  were  based  largely  upon  previous  practice,  with  such 
changes  as  experience  dictated.  An  assessor  was  to  be 
appointed  in  each  county  by  the  court  of  common  pleas,73 
and  was  to  be  furnished  with  lists  of  land  and  copies  of 
maps  by  the  county  auditor;  the  owner  was  to  list  all  his 
property  minutely,  but  the  assessor  was  to  make  the  true 
valuation,  upon  actual  view.  If  the  owner  were  absent  or 

"See  supra,  p.  195. 

"The  assessor  had  to  take  an  oath  of  office  and  was  put  under  bond  of 
$1000.  As  compensation  he  received  6  per  cent  on  property  assessed  under 
$1000;  3  per  cent  on  properties  between  $1000  and  $3000;  and  2  per  cent 
on  all  over  $3000. 


204  FINANCIAL  HISTORY  OF  OHIO  [204 

unable  to  give  a  list,  the  assessor  should  make  it  out; 
persons  refusing  to  give,  or  giving  a  fraudulent  list,  to  be 
charged  with  three  times  the  amount  of  the  tax.  The  col- 
lector's duties  were  defined  by  the  act  of  February  8, 1825 : 
he  must  call  at  the  place  of  residence  of  every  person 
charged  with  a  tax  by  November  1;  if  the  tax  were  not 
paid  by  November  20,  he  might  distrain  sufficient  goods  and 
chattels  to  satisfy  the  tax,  advertise,  and  sell  them.  The 
auditor  acted  as  collector  and  was  allowed  mileage  of 
eight  cents  a  mile.  County  boards  of  equalization  were 
established,  consisting  of  the  commissioners,  auditor,  and 
assessors  of  each  county,  with  power  to  add  to  or  deduct 
from  any  valuation  made  by  the  assessors.  A  state  board 
of  equalization  was  constituted  of  members  of  the  legisla- 
ture, chosen  by  itself,  one  from  each  congressional  district, 
together  with  the  auditor  of  state,  which  wTas  given  power 
to  equalize  the  valuations  as  between  counties. 

Full  as  the  original  law  was74  the  multitude  of  small 
amendments  which  appeared  the  next  few  years  are  elo- 
quent witnesses  of  the  difficulties  attending  the  introduc- 
tion of  the  effort  to  tax  all  property.  By  act  of  January 
31,  1827,  non-residents  were  permitted  to  pay  their  taxes 
to  the  state  auditor,  instead  of  in  the  county  where  they 
were  situated.  The  proper  taxation  of  grazing  cattle 
offered  a  problem  to  the  legislators.  They  w^ere  registered 
in  no  county  and  were  evidently  in  no  county  long  enough 
to  be  listed;  the  act  of  February  7,  1829,  provided  that 
they  were  to  be  recorded  in  the  county  in  which  the  owner 
lived.  But  some  of  the  owners  lived  in  counties  far  from 
their  cattle  and  some  lived  out  of  the  state;  and  all  were 
rather  hard  to  find  when  the  taxes  were  due,  so  on  Febru- 
ary 22,  1830,  a  further  amendment  made  cattle,  grazing 
in  any  county  and  belonging  to  a  non-resident,  taxable  in 
the  county  where  they  were  grazing. 

After  the  passage  of  the  act  of  1825  a  valuation  of  all 
the  taxable  property  in  the  state  was  undertaken,  which 
constituted  the  first  Grand  List,  upon  which  were  to  be 

"It  contained  forty  sections. 


205]  THE  GENERAL  PROPERTY  TAX  205 

assessed  the  necessary  levies  for  state,  county,  and  town- 
ship purposes.  The  value  of  lands  was  f  39,729,411,  of  town 
lots  and  personal  property  $18,745,096,  making  a  total 
valuation  of  $58,474,507.  The  act  of  1825  fixed  no  period 
for  a  second  general  valuation.  The  appraisement  made 
under  it  was  to  remain  unaltered  until  further  legislation. 
The  county  assessors,  however,  were  required  to  ascertain 
in  the  spring  of  each  year,  what  land  had  become  liable 
to  taxation  during  the  preceding  year,  and  what  new  im- 
provements had  been  made  by  structures  on  lands.  The 
value  of  this  land  and  these  improvements,  annually  ascer- 
tained by  the  assessors,  together  with  that  of  all  taxable 
personal  property,  computed  according  to  arbitrary  rates 
fixed  by  law,  added  annually  to  the  equalized  value  of  the 
real  property,  was  to  constitute  the  Grand  List,  and  form 
the  basis  of  taxation  for  the  current  year.  Owing  to  the 
rapid  and  uneven  growth  in  the  value  of  property,  due  in 
large  measure  to  the  building  of  the  canals  and  of  the  na- 
tional road  through  certain  sections  of  the  state,  the  valua- 
tion of  real  estate  established  in  1826  soon  revealed 
inequalities.  Consequently  a  revaluation  was  made  in 
1834  and  at  irregular  intervals  thereafter  until  the  con- 
stitution of  1851  provided  for  decennial  valuations,  begin- 
ning in  1861.73 

The  effect  of  the  new  law  upon  the  revenues  of  the 
state  was  pronounced.  Under  this  system  new  sources  of 
revenue  were  tapped  and  the  resources  of  the  state  greatly 
enlarged.  The  entrance  of  the  state  during  the  same  }^ear 
upon  the  policy  of  internal  improvements  committed  the 
state  to  greatly  increased  expenditures,  and  necessitated 
large  additional  revenues.  Owing  to  the  fact  that  the  whole 
attention  of  the  legislature  and  the  people  during  this 
period  was  absorbed  by  the  subject  of  constructing  the  new 
state  canals,  the  general  property  tax  law  received  less 
attention  than  it  otherwise  would  have.  The  imposition  of 

"Valuations  of  the  real  property  in  the  state  have  been  made  in  the 
years  1825.  1834,  1840,  1846,  1853,  1859,  1870,  1880,  1890,  1900,  1910. 
Hereafter  they  are  to  be  quadrennial,  dating  from  1910. 


206 


FINANCIAL  HISTORY  OF  OHIO 


[206 


heavier  taxes  for  canal  purposes  moreover  somewhat  con- 
fused the  actual  effect  of  the  general  property  tax  as  such. 
The  following  table  shows  the  growth  of  the  taxable  prop- 
erty and  of  the  revenue  to  the  state  and  local  governments : 

GRAND    DUPLICATE   OF   OHIO,    1826-1909. 


Years. 

Value  of 
Realty. 

Value  of 
Personalty. 

Total   Value 
of  Taxable 
Property. 

State 
Tax. 

Total." 

State 
Rate 
Mills. 

1826 

$15,946,840 

$11,035,820 

$57,982,640 

$105,816 

$392,783 

1.50 

1831 

50,627,110 

15,793,666 

66,420,776 

240,991 

615,651 

1.50 

1836 

72,223,906 

27,029,444 

99,253,356 

211,932 

1,007,216 

1.25 

1841 

100,851,837 

27,501,820 

128,353,657 

642,153 

1,890,405 

1-75 

1846 

109,940,636 

40,352,496 

159,293,132 

1,214,897 

2,589,073 

3-oo 

1851 

346,341,233 

115,807,387 

462,148,620 

1,687,392 

4,957,013 

3-60 

1856 

580,634,487 

240,026,550 

820,661,037 

2,626,132 

8,009,514 

3.20 

1861 

634883,552 

248,966,532 

892,850,084 

4,056,379 

11,656,814 

4-55 

1866 

663,647,542 

446,561,379 

1,106,208,921 

3,867,167 

18,868,437 

3,50 

1871 

1,025,619,034 

476,510,937 

1,502,129,971 

4,350,728 

22,955,388 

2.90 

1876 

1,076,788,367 

520,681,599 

1,597,469,966 

4,626,629 

28,521,256 

2.90 

1881 

1,101,457,383 

485,750,196 

1,587,207,5/9 

4,598,057 

27,606,380 

2.90 

1886 

1,173,106,705 

515,569,463 

1,688,676,168 

4,894,594 

33,378,558 

2.90 

1891 

1,151,038,931 

556,164,445 

1,707,203,376 

4,181,143 

35,861,610 

2.75 

1896 

1,226,988,666 

514,039,771 

1,741,028,437 

4,942,533 

40,638,201 

2.84 

1901 

i,377,253,i83 

591,026,817 

1,968,280,000 

5,686,249 

47,980,509 

2,89 

1906 

1,520,998,646 

718,788,257 

2,239,786,903 

3,012,115 

60,974,046 

1-35 

1909 

1,619,462,263 

770,516,086 

2,389,978,349 

3,214,085 

71,706,371 

1-35 

Taxes  still  fell  most  heavily  on  the  farmers.  The 
items  of  "town  lots  and  buildings"  of  "merchants'  and 
brokers'  capital",  and  of  "pleasure  carriages"  formed  but 
a  small  part  of  the  total  amount  of  taxable  property  in  the 
state.  In  1831  they  constituted  a  little  less  than  20  per 
cent  of  the  whole.  The  valuations  of  property  and  the 
taxes  for  that  vear  were  as  follows  :77 


"The  total  includes  the  per  capita  on  dogs  which  amounted  in  1909, 
to  $255,774- 

"Aud.  rep.,  Ho.  /.,  1831,  p.  28. 


207]                           THE  GENERAL  PROPERTY  TAX  207 

PROPERTY  VALUATIONS. 

Value  of  land,  including  houses $40,152,151 

Value  of  town   lots,   including  buildings 8,327,151 

Value  of  horses 7,103,840 

Value  of  cattle  2,853,824 

Merchants'  capital 3,987,235 

Carriages 29,212 


Total    $62,453,423 

TAXES. 

State   and   canal    tax $  224,484 

County  and  school  tax 224,267 

Road  tax 61,807 

Township   tax 44,755 

Tax  on  lawyers  and  physicians 1,528 


Total    $  577,576 

The  first  important  amendment  to  the  new  system  was 
the  result  of  an  effort  to  enlarge  the  list  of  taxable  prop- 
erty, and  especially  to  subject  intangible  personalty  and 
capital  employed  in  manufacturing  to  taxation.  This  was 
done  by  the  act  of  March  14,  1831,  which  enlarged  very 
considerably  the  descriptions  of  taxable  property,  reduced 
the  list  of  exemptions,  and  extended  the  application  of  the 
principle  of  appraisement,  though  it  still  retained  in  some 
cases  the  principle  of  arbitrary  valuation  by  the  legisla- 
ture. In  addition  to  the  list  of  taxable  property  given  in 
the  act  of  1825  the  following  objects  were  enumerated: 
"all  grist,  oil  and  saw  mills;  all  manufactories  of  iron, 
glass,  paper,  clocks  and  nails;  all  distilleries,  breweries 
and  tanneries;  all  iron,  brass  and  copper  foundries;  all 
money  loaned  at  interest  ;78  all  stocks  or  capital  invested  in 
steamboats;  all  pleasure  carriages  with  two  or  four 
wheels."  As  most  of  these  items  were  taken  from  the 
exempt  class  of  the  earlier  law,  this  was  now  reduced  to 
very  small  proportions;  it  contained  only  lands  and  build- 

78Mr.  N.  W.  Evans  is  in  error  when  he  writes  in  his  book,  A  History 
of  Taxation  in  Ohio,  (p.  19)  :  "I  cannot  find  that  money  was  made  directly 
taxable  in  Ohio,  until  by  the  Kelley  law  of  March  2,  1846". 


208  FINANCIAL  HISTORY  OF  OHIO  [208 

ings  of  religious,79  educational,  and  charitable  institutions, 
public  grounds  and  buildings,  and  Congress  lands  for  five 
years  after  purchase.  Merchants  dealing  in  domestic 
merchandise,  with  less  than  $200  stock,  were  also  ex- 
empted. The  attempt  to  classify  merchants  and  exchange 
brokers  was  given  up;  they  were  now  to  be  taxed  "accord- 
ing to  the  value  of  the  stock  in  trade  used".80 

Credits  were  made  taxable  by  this  act  for  the  first 
time  in  Ohio,  and  provision  made  for  the  careful  listing  of 
other  forms  of  personal  property.  The  assessor  was  to 
call  upon  all  persons  having  anything  mentioned  in  the 
description  of  taxable  property  for  a  complete  list.  Land 
and  buildings,  mills  and  factories,  pleasure  carriages,  etc., 
must  be  valued  at  their  true  value  upon  actual  view; 
stock  in  steamboats  to  be  valued  by  the  owner  upon  oath; 
"all  money  loaned  at  interest  on  notes,  bonds,  single  bills 
or  mortgages,  over  and  above-  amount  on  which  the  said 
person  pays  interest  shall  be  valued  and  assessed  as  so 
much  capital",  which  must  be  declared  by  the  owner  upon 
oath.  All  property  must  be  listed  by  March  1,  and  dupli- 
cates must  be  prepared  by  the  assessor  by  June  1,  during 
which  month  the  county  board  of  equalization  met  to  cor- 
rect the  lists.  No  changes  were  made  in  the  constitution  or 
duties  of  these  boards,  or  of  other  officers.  Gradually  the 
system  of  the  general  property  tax,  according  to  which  all 
property  is  assessed  and  taxed  under  a  uniform  law,  which 
had  been  introduced  in  1825,  was  being  enlarged  and  made 


all-embracing. 


REVALUATIONS. 


The  changes  introduced  into  the  tax  system  by  the 
law  of  1831,  which  expanded  the  list  of  personal  property 
rendered  taxable,  but  made  more  manifest  the  inequalities 
in  the  valuation  of  real  estate.  The  first  appraisement  had 

"The  amount  of  land  belonging  to  religious  institutions  exempted 
was  limited  to  10  acres,  which  was  cut  down  to  2  acres  by  the  act  of 
Jan.  18,  1836. 

The  act  of  March  21,  1840,  provided  for  taxing  the  capital  of  ex- 
change brokers  and  stock  jobbers. 


209]  THE  GENERAL  PROPERTY  TAX  209 

not  been  altogether  satisfactory  and  the  rapid  and  uneven 
growth  of  the  state  since  had  introduced  new  inequalities. 
"Complaints  are  made",  write  the  governor81  only  five  years 
after  the  passage  of  the  law  of  1825, 

that  errors  and  mistakes  exist,  which  need  correction;  that  the  equaliza- 
tion have  [sic]  imperfections  that  usually  attend  first  experiments,  and 
have  left  upon  portions  of  the  state  unequal  burdens.  If  this  is  the  case, 
the  principles  upon  which  the  law  originated,  would  seem  to  require,  as 
soon  as  practicable  a  revaluation,  in  order  that  its  provisions  might  have 
an  equal  operation. 

The  subject  of  a  revaluation  was  also  urged  upon 
the  attention  of  the  legislatures  in  successive  reports  of  the 
auditor.  In  1834  the  auditor  wrote:82 

The  important  revaluations  that  have  taken  place  in  the  property  of  the 
state,  particularly  on  our  navigable  waters,  and  upon  the  lines  of  our 
canals,  which  were  not  commenced  when  the  value  of  the  property  of 
the  state  was  first  estimated,  seems  to  require  that  a  more  equitable  mode 
of  assessment  be  adopted.  The  subject  of  revaluation  has  been  twice 
recommended  by  my  predecessor ;  and  I  can  but  respectfully  second  his 
views  on  this  important  subject  of  financial  policy. 

In  response  to  these  repeated  appeals  the  legislature 
in  183483  tardily  provided  for  a  reappraisal  of  the  value 
of  real  estate.  The  county  commissioners  were  empowered 
to  appoint  one  or  more  appraisers  in  each  county,  who 
"shall  appraise  at  its  fair  cash  value  all  real  estate",  made 
taxable  by  the  act  of  March  14,  1831.  The  county  com- 
missioners, auditor,  and  appraisers  were  to  constitute  a 
special  board  of  equalization  for  each  county,  while  the 
commissioners,  auditor,  and  assessors  constituted  a  county 
board  of  equalization.  The  state  board  was  comprised  of 
the  auditor  of  state  and  one  person  from  each  congres- 
sional district,  who  should  be  appointed  by  joint  resolu- 
tion of  the  general  assembly. 

As  a  result  of  the  revaluation  new  property  to  the 
value  of  |18,000,000  was  added  to  the  aggregate  of  taxable 

"Gov.  Mess.,  Ho.  J '.,  1830,  p.  27.  This  executive  does  not  seem  to 
have  been  a  master  of  either  English  or  taxation. 

"Aud.  rep.,  in  Ho.  J.,  1834,  p.  109. 

The  date  of  this  act  was  not  given  in  the  laws,  but  it  was  probably 
Feb.  24,  1834. 


210  FINANCIAL  HISTORY  OF  OHIO  [210 

property  of  the  state  in  one  year.84  The  total  amount  of 
taxable  property  was  increased  over  37  per  cent,  and  the 
proportion  of  taxes  borne  by  the  farmers  was  somewhat 
lessened.  The  equalized  value  of  the  lands  and  town  lots 
was  173,932,892,  and  the  total  amount  of  the  Grand  List 
for  1835  was  $95,927,396,  of  which  the  personalty  therefore 
constituted  about  25  per  cent.  In  nine  years  the  value  of 
taxable  property  had  increased  $37,452,889,  and  the  pro- 
portion of  the  personal  property  had  also  grown.  In  spite 
of  the  oaths  of  assessors  and  tax-payers,  however,  the  value 
of  real  estate  as  returned  at  this  time  was  only  about  one- 
fourth  of  its  true  value.  The  rate  of  taxation — 14  mills 
on  the  dollar  in  1837 — should  therefore  be  divided  by  four 
to  get  a  correct  idea  of  the  burden  of  state  and  local  taxes 
upon  the  people.85 

The  complaints  in  relation  to  land  subject  to  taxation, 
but  which  was  not  entered  upon  the  duplicates,  still  con- 
tinued. The  evil  was  a  serious  one,  according  to  the  audit- 
or :86  "in  many  cases  land  became  lost  in  the  annual  copy- 
ing of  the  duplicates,  and  in  neglect  on  the  part  of  the 
auditor  and  assessors  in  restoring  them".  But  worse  than 

"Aud.  rep.,  Ho.  J.,  1836,  p.  174. 

^Gov.  Mess.,  Exec.  Doc.,  1837,  I,  12.  The  governor  rather  longingly 
compared  Ohio  with  other  states  where  "the  state  tax  is  merely  nominal, 
their  government  being  supported  from  income  on  stocks  of  different 
descriptions ;  and  in  the  state  of  Alabama  no  state  tax  exists,  the  state 
governments  being  supported  by  an  income  from  bank  capital."  For  a  still 
more  exaggerated  estimate  as  to  the  existence  of  lucrative  state  funds,  see 
the  report  of  the  House  Committee  of  Finance,  January  18,  1814:  "While 
most  of  the  states  composing  this  Union,  are  possessed  of  a  public  or  state 
fund,  to  which  on  any  exigency  resort  may  be  had,  this  state  is  utterly 
destitute  of  any.  Without  the  imposition  of  taxes,  many  of  our  sister 
states,  it  is  believed  are  enabled,  not  only  to  expend  vast  sums,  in  the  con- 
struction of  roads,  canals  and  public  institutions ;  in  forming  military 
magazines,  and  in  procuring  implements  of  war — but  also,  from  the 
annual  product  of  their  public  funds,  to  the  support  of  all  the  expenses 
of  their  civil  government.  Having  such  a  fund  to  resort  to,  international 
commotions  and  foreign  invasions,  to  which  from  the  nature  of  things 
all  states  must  be  exposed,  and  against  which  they  should  guard,  will  never 
find  them  destitute  of  resource."  Ho.  J.,  1814,  p.  178. 

MAud.  rep.,  1839.    Exec.  Doc.,  No.  2,  p.  17. 


211]  THE  GENERAL  PROPERTY  TAX  211 

official  carelessness  was  the  undervaluation  of  some  lauds, 
and  the  changes  in  relative  values  of  others  brought  about 
by  the  rapid  development  of  certain  sections  of  the  state, 
and  also  by  the  collapse  in  the  land  speculation  which 
reached  its  culmination  in  1837.  Consequently  a  third 
valuation  of  the  real  estate  in  Ohio  was  made  in  1840,  and 
was  equalized  in  1841.  This  was  provided  for  by  the  act 
of  March  13,  1840. 

This  act  was  more  carefully  drawn  than  either  of  the 
two  preceding  ones,  and  is  especially  interesting  for  the 
light  it  throws  upon  the  economic  development  of  Ohio, 
as  shown  by  the  growth  in  the  list  of  taxable  properties. 
The  court  of  common  pleas  in  each  county  was  required 
to  appoint  appraisers,  who  should  appraise  at  its  "fair 
cash  value",87  between  April  1  and  September  25,  the  fol- 
lowing list  of  property:  (1)  real  estate,  taking  into  con- 
sideration its  fertility,  location,  etc.,  but  having  no  refer- 
ence to  the  value  of  the  improvements;  (2)  town-lots,  in 
the  same  fashion;  (3)  dwelling  houses,  warehouses,  shops, 
etc.,  over  the  value  of  $200  ;88  (4)  grist  mills,  oil  mills,  saw 
mills,  paper  mills,  fulling  mills,  and  carding  machines, 
over  the  value  of  $200  ;8S  (5)  all  distilleries,  breweries,  and 
tanneries,  and  all  manufactories  of  cloths,  carpets,  cotton 
yards,  iron,  glass,  clocks  and  nails,  all  iron,  brass,  and  cop- 
per foundries,  over  the  value  of  $200.88  The  appraiser  was 
to  make  a  list,  place  the  value  opposite  each  item,  and 
inform  the  owner.  For  the  correction  of  errors,  the  county 
commissioners,  county  auditor,  and  appraisers  constituted 
a  special  board  of  equalization;  the  ordinary  county  board 
of  equalization  was  made  up  as  under  the  acts  of  1825  and 
1831.  The  legislature  was  still  experimenting  with  the 
state  board  of  equalization,  which  had  evidently  been  un- 
satisfactory;  it  was  now  constituted  of  the  state  auditor 
and  one  person  from  each  senatorial  district,  appointed 

"This  was  evidently  not  done,  for  four  years  later  the  auditor 
spoke  of  the  necessity  of  adopting  the  principle  of  a  "cash  valuation". 
Aud.  rep.,  Dec.  3,  1844.  In  fact  it  never  has  been  done,  assessors'  oaths  to 
the  contrary  notwithstanding. 

"I.e.,  the  excess  over  $200  only. 


212  FINANCIAL  HISTORY  OF  OHIO  [212 

by  joint  resolution  of  both  houses.  The  equalized  valuation 
of  the  real  estate  was  $99,154,745,  an  increase  over  that 
of  six  years  before  of  $25,221,853 ;  the  grand  list  for  1841, 
embracing  all  assessed  property,  both  real  and  personal, 
was  $128,353,657. 

SALE  AND  REDEMPTION  OF  DELINQUENT  LANDS. 

We  traced  the  legislation  on  this  subject  down  to  the 
year  1830.  The  sound  policy  laid  down  by  the  act  of 
January  30,  1822,  still  formed  the  basis  of  the  law  on  the 
matter  of  the  redemption  of  lands  forfeited  for  non-pay- 
ment of  taxes.  This  was,  however,  reversed  by  the  act  of 
March  3,  1831,  which  provided  that  all  lands  which  had 
been  or  might  be  sold  for  taxes  might  be  redeemed  within 
two  years.  The  applicant  should  apply  to  the  court  of 
common  pleas  of  the  county,  give  six  weeks  notice  in  a 
newspaper,  and  deposit  the  redemption  money  with  the 
clerk,  including  costs  and  a  penalty  of  50  per  cent.  The 
court  should  then  award  the  applicant  the  premises.  The 
purchaser  was  to  be  paid  for  the  land  and  also  for  all  im- 
provements made  by  him.  Another  act  of  the  same  year89 
provided  "for  the  sale  of  lands  forfeited  to  the  state  for 
non-payment  of  taxes"  prior  to  January  1, 1831.  The  state 
auditor  was  to  make  a  list  of  such  lands,  the  county  auditor 
to  advertise  and  sell  them  at  public  auction  to  the  highest 
bidder.  After  1831,  lists  were  to  be  sent  out  and  sales 
made  biennially.  The  purchaser  at  tax  sales  was  to  be 
considered  as  the  assignee  of  the  state.  In  view  of  the 
previous  act  of  March  3,  this  last  clause  was  of  value 
only  in  case  the  former  owner  did  not  attempt  to  redeem 
his  land.  The  title  was  now  valid,  but  the  position  of  the 
purchaser  was  again  an  insecure  one,  for  he  might  be 
ousted  any  time  within  two  years. 

As  time  went  on  greater  familiarity  with  the  new  sys- 
tem seems  to  have  bred  a  certain  amount  of  contempt,  and 
also  ability  to  evade  its  requirements.  The  old  evils  of 
non-payment  of  taxes  and  forfeiture  of  lands  began  to 

"Act  of  March  14,  1831. 


213]  THE  GENERAL  PROPERTY  TAX  213 

assume  proportions  as  great  as  before  1825.  By  1842  the 
delinquencies  in  taxes  exceeded  $30,000  a  year  and  were 
steadily  increasing.90  During  the  preceding  session  an  act 
had  been  passed  providing  for  the  publication  of  the  list  of 
forfeited  lands,  and  extending  the  time  for  redemption  to 
January  1,  1843 ;  but  only  a  small  amount  was  redeemed. 
"It  is  a  moderate  estimate",  wrote  the  auditor,91  "that  one- 
fourth  of  all  the  lands  advertised  this  fall,  will  be  returned 
as  "not  sold  for  want  of  bidders",  and  consequently  be- 
come forfeited  to  the  state.  There  is  no  fear  of  a  tax  sale 
on  the  part  of  the  owner  and  no  confidence  on  the  part  of 
the  purchaser.  The  rule  of  construction  on  the  part  of 
the  courts,  invariably  sets  aside  these  sales;  for,  in  the 
present  confused  state  of  our  legal  enactments,  it  is  im- 
possible they  should  all  be  observed  by  the  several  officers 
charged  with  the  assessment  and  collection  of  taxes".  The 
following  year  the  amount  of  taxes  levied  but  uncollected 
amounted  to  one-ninth  of  the  whole  levy,  and  the  auditor 
summed  up  the  whole  matter  in  a  single  sentence:  "the 
present  laws  are  totally  inefficient".92 

The  act  of  March  12, 1845,  amended  the  law  of  1831  by 
providing  that  the  former  owner  of  land  sold  by  the  state 
for  non-payment  of  taxes  might  redeem  the  same  within 
six  months  from  the  date  of  sale  by  depositing  with  the 
county  auditor  the  amount  of  the  sale  plus  50  per  cent,  and 
paying  all  expenses.  In  this,  as  in  most  of  the  legislation 
on  the  subject,  every  opportunity  was  given  to  the  former 
owner  to  regain  his  land.  Under  such  a  system  there  could 
have  been  little  inducement  to  buy  land  at  tax  sales.  This 
act  was  still  further  strengthened  in  1850  by  an  amend- 
ment providing  that  a  person  might  redeem  land  sold  for 
taxes  by  depositing  the  amount  required  by  law  with  the 
county  auditor,  and  that  the  auditor  should  give  a  receipt, 

•°Aud.  rep.,  Dec.  6,  1842. 

"Ibid. 

"Aud.  rep.,  Dec.  5,  1843.  In  his  report  for  Dec.  3,  1844,  the  auditor 
refers  again  to  the  need  of  "a  thorough  change  in  the  laws  for  the  sale 
of  lands  delinquent  or  forfeited  for  taxes,  so  as  to  render  them  efficient 
in  their  character." 


214  FINANCIAL  HISTORY  OF  OHIO  [214 

and  that  the  deposit  should  "operate  as  an  extinguishment 
of  all  rights  conferred  by  such  sale".93  In  the  same  year 
the  auditor  reported  that  the  losses  and  delinquencies,  and 
cost  of  collection  of  the  taxes  for  the  four  years  previous, 
amounted  to  less  than  3  per  cent.  "No  example  can 
be  found",  he  added,  "of  a  more  efficient  and  economical 
system." 

THE  KELLEY  LAW,  1846. 

The  existing  tax  system,  in  spite  of  efforts  to  improve 
it,  failed  to  yield  sufficient  revenue,  but  produced  instead 
many  inequalities  and  great  dissatisfaction.  Instead  of 
using  the  taxing  power  solely  for  the  raising  of  revenue, 
the  legislature  used  it  to  favor  or  discourage  special  inter- 
ests or  objects.  Improved  lands  were  valued  and  taxed 
without  any  reference  to  the  improvements,  as  if  they 
were  still  in  a  state  of  nature,  in  order  to  favor  the  agricul- 
tural interest.  The  exemption  of  tools  and  machinery  was 
designed  as  an  encouragement  to  the  mechanics  and  manu- 
facturers of  the  state.  Taxing  banks  on  their  profits  only 
was  held  out  as  a  bonus  for  foreign  capital ;  while  the 
exemption  of  property  appropriated  to  educational  and 
charitable  purposes,  was  intended  as  an  approval  of  those 
objects.  Under  this  policy  the  duplicate  decreased  until  it 
embraced  only  about  one-fourth  of  the  actual  wealth  of 
the  state;94  at  the  same  time  the  revenue  was  insufficient 
to  meet  the  expenditures  of  the  state,  and  for  ten  years 
after  1836  there  were  annual  deficits.  Interest  on  the  debt 
and  current  expenses  were  met  by  borrowing,  probably 
$1,500,000  being  added  to  the  principal  of  the  state  debt 
during  this  period.  The  attempt  to  favor  every  deserving 
object  in  society  multiplied  the  pleas  for  further  exemp- 
tions, and  there  was  danger  that  the  true  idea  of  taxation 
would  be  entirely  lost.  In  order  to  raise  the  necessary 
revenue  various  special  taxes  were  imposed,  as  on  banks, 
insurance  and  bridge  companies,  auctioneers,  lawyers  and 
physicians,  etc.,  which  however  produced  but  little. 

"Act  of  March  23,  1850. 

MGov.  Mess.    Exec.  Doc.,  1855,  I,  13. 


215]  THE  GENERAL  PROPERTY  TAX  215 

As  a  result  of  these  facts  dissatisfaction  with  the  reve- 
nue system  grew  serious.  Complaints  as  to  the  working 
of  the  laws  of  1825  and  1831  found  typical  expression  in 
the  indictment  of  the  system  contained  in  the  auditor's  re- 
port for  1842.  In  this  he  spoke  of  the  great  inequality 
between  the  various  kinds  of  property,  and  the  undue 
burden  placed  upon  the  land;  of  the  injustice  of  the  pres- 
ent appraisement  between  the  farming  and  the  town  inter- 
ests;95 of  the  undue  burden  upon  the  owners  of  small 
tracts,  owing  to  the  burdensome  taxes  on  domestic  animals. 
But  it  was  between  real  and  personal  property96  that  there 
existed  the  most 

marked  disproportion  in  the  character  of  the  public  burdens.  For  instance, 
the  county  of  Hamilton,  with  all  the  vast  resources  and  wealth  of  the 
greatest  city  of  the  west,  returned  last  year,  under  the  head  of  "merchants' 
capital,  and  money  at  interest",  $1,364,196 — whilst  the  county  of  Ross, 
returned  the  sum  of  $403,799 — being  very  nearly  one-third  the  amount 
returned  by  the  county  of  Hamilton.  No  one  acquainted  with  the  wealth 
and  business  of  the  two  counties,  will  hazard  the  assertion,  that  this  is 
anything  near  an  adequate  apportionment.  The  probabilities  are,  that  in 
the  one  a  strict  and  rigid  rule  has  been  observed,  whilst  in  the  other  a 
very  considerable  amount  has  been  suffered  to  escape." 

One  or  two  feeble  attempts  at  improvement  were  made. 
The  act  of  January  24,  1840,98  provided  for  subjecting 
canal  lands  of  the  state,  which  had  so  far  escaped,  to  taxa- 
tion. Another  act,  four  years  later,99  declared  leased  school 
lands  taxable  for  school  purposes.  In  1845  an  effort  was 
made  to  tax  intangible  personalty  more  rigidly.  The  act 
"to  provide  more  effectually  for  a  correct  and  equal  assess- 
ment of  Money  and  Capital  in  trade,  for  the  purpose  of 

"•'The  town  property  and  personal  property  together  paid  only  one- 
third  of  all  the  taxes. 

"The  personal  property  paid  a  little  less  than  one-seventh  of  the  whole 
taxation  of  the  state. 

"And.  rep.,  Dec.  6,  1842.  The  city  of  Cincinnati  in  Hamilton  county 
was  the  center  of  western  trade  and  of  the  packing  industry ;  the  county 
had  a  population  of  over  80.000.  Ross  county  was  agricultural  and  its 
largest  town  was  Chillicothe ;  the  population  of  the  entire  county  was 
only  27,500. 

-38  O.  L.  10. 

"March  12,  1844. 


216  FINANCIAL  HISTORY  OF  OHIO  [216 

Taxation",100  provided  that  the  assessors  might  require 
written  statements  under  oath  from  the  tax-payers;  defined 
more  carefully  money  and  discounted  evidences  of  debt, 
and  merchants,  bankers  and  brokers ;  and  amended  the  act 
of  March  14,  1831,  by  exempting  pleasure  carriages  under 
$40  in  value,  and  by  taxing  stage-coaches.  It  was  mani- 
fest, however,  that  more  thoroughgoing  changes  would 
have  to  be  introduced  if  the  difficulties  and  evils  of  the 
existing  system  were  to  be  remedied. 

This  Avas  attempted  in  1846,  when  the  so-called  Kelley 
act  was  passed,101  which  thoroughly  revised  the  existing 
laws  concerning  taxation.  Previous  errors  wrere  thereby 
partially  remedied,  but  many  flagrant  ones  were  continued 
from  ill-advised  partiality  until  they  wrere  swept  away  by 
the  constitution  of  1851. 

The  purpose  of  the  new  law  was  indicated  in  its  title : 
"an  act  for  levying  Taxes  on  all  property  in  this  State 
according  to  its  true  value".  The  first  section  further 
stated  that  "all  property,  whether  real  or  personal,  within 
this  state,  and  all  moneys  and  credits  of  persons  residing 
therein,  unless  exempted,  shall  be  subject  to  taxation." 
Important  additions  were  made  to  the  descriptions  of  tax- 
able property;  personal  property  was  defined  as  "every 
tangible  thing,  being  the  subject  of  ownership,  whether 
animate  or  inanimate,  other  than  money  and  real  prop- 
erty", and  was  declared  taxable  together  with  money, 
credits,  and  real  property.  For  instance,  "other  domestic 
animals"  were  added  to  horses  and  cattle,  which  alone 
had  been  taxed  before  this;  and  watches,  pianos,  and  un- 
enumerated  articles  were  added  to  carriages. 

Exemptions  were  restricted  and  defined  with  greater 
precision,  though  the  list  was  still  extremely  long  and  gen- 
erous. It  comprised  schools  and  religious  buildings  with 
twenty  acres  of  land;  graveyards;  buildings  of  scientific, 
literary  or  benevolent  societies  with  the  land  they  occu- 

100March  13,  1845. 

101March  2,  1846.    40  O.  L.  85 ;  2  Cunven,  1260.    It  was  introduced  by 
the  Hon.  Alfred  Kelley. 


217]  THE  GENERAL  PROPERTY  TAX  217 

pied,  moneys  or  credits  belonging  to  the  above  and  used 
for  their  specific  purposes;  public  property  of  Ohio  or  of 
the  United  States ;  lands  sold  by  the  United  States  for  five 
years  after  sale;  county  buildings  with  ten  acres  of  land, 
county  or  township  buildings  for  the  poor;  public  build- 
ings and  works,  state  stocks;  furniture,  etc.,  of  private 
individuals  not  exceeding  $  100  in  value ;  furniture,  etc.,  of 
taverns  or  boarding  houses  not  exceeding  $200;  wearing 
apparel  of  every  person,  food,  animals  not  specifically  sub- 
ject to  taxation,  farming  implements,  mechanics'  tools  up 
to  $150;  each  family,  unless  taxed  for  over  $100,  might 
have  exempt  one  cow,  eight  sheep,  and  four  hogs. 

Property  was  to  be  returned  and  taxed  in  the  county 
or  town  where  situated;  owners  were  permitted  to  list  their 
own  property,  filling  out  an  elaborate  schedule  of  nine 
heads,  but  from  the  list  of  moneys  and  credits  might  deduct 
debts  owing.  If  the  assessors  demanded  it,  they  must  take 
an  oath  to  verify  it.  Rules  of  appraisement  were  prescribed 
with  a  view  to  ensure  a  closer  approximation  of  valuation 
to  value ;  the  principle  of  actual  appraisement  was  for  the 
first  time  applied  to  all  objects  of  taxation  to  which,  in  the 
nature  of  things,  it  was  applicable;  clear  directions  were 
given  for  the  annual  listing  and  valuation  of  lands  becom- 
ing taxable  for  the  first  time,  of  improvements,  and  of  all 
personal  property;  a  new  valuation  of  all  real  property 
was  directed,  and  provision  was  made  for  future  valua- 
tions every  sixth  year.  In  place  of  the  county  assessors 
appointed  by  the  court  of  common  pleas,  district  assessors 
were  now  provided  for  to  be  appointed  by  the  county  com- 
missioners, while  in  each  township  local  assessors  were  to 
be  elected.  The  county  board  of  equalization  was  to  con- 
sist of  the  county  auditor,  surveyor,  commissioners,  and 
district  assessors;  while  the  state  board  of  equalization 
should  consist  of  one  person  appointed  by  the  general  as- 
sembly from  each  senatorial  district,  who  must  have  been  a 
resident  of  the  state  ten  years  and  of  the  district  five  years. 
Banks,  merchants,  manufacturers,  and  general  corpora- 
tions were  taxed  on  their  capital,  but  were  permitted  to 
deduct  actual  debts.  A  great  increase  took  place  in 


218 


FINANCIAL  HISTORY  OP  OHIO 


[218 


"merchants'  and  manufacturers'  stock,  money,  and  cred- 
its" ;  under  the  earlier  laws  manufacturers'  stock  had  been 
entirely  exempted. 

sThe  effect  of  the  new  law  upon  the  amount  of  property 
returned  for  taxation  and  the  revenues  of  the  state  was  at 
once  apparent.    The  whole  property  of  the  state  returned 
upon  the  tax  list  of  1844  was  valued  at  f  136,142,666,  upon 
which  a  tax  of  7  mills  upon  the  dollar  for  state  purposes 
was  levied,  amounting  to  $948,997.     The  duplicates  of 
1846,  when  the  new  law  was  only  partially  in  operation 
as  to  personal  property  amounted  to  $150,293,132,  upon 
which  a  state  tax  of  eight  mills  on  the  dollar  was  levied, 
amounting  to  $1,208,562,  making  a  difference  in  two  years 
of  $259,565.102     Most  of  the  increase  came  from  personal 
property,  and  the  tax  burden  wras  thus  made  more  equit- 
able.   Over  $100,000  of  taxes  were  collected  and  paid  into 
the  treasury  in  1846  upon  property  and  capital  which  had 
never  been  subject  to  taxation  before,  and  at  the  same  time 
a  reduction  of  about  eight  millions  was  made  in  the  valua- 
tion of  domestic  animals,  a  class  of  property  which  had 
previously  paid  more  than  double  its  just  proportion  of 
the  taxes  and  had  imposed  an  unduly  heavy  burden  upon 
the  farmers.103     The  value  of  several  classes  of  personal 
property,  entered  on  the  grand  list  for  taxation,  for  the 
vears  1844-1848,  was  as  follows : 


Years. 

Domestic 
Animals. 

Carriages, 
Watches  and 
Pianos. 

Enumerated 
and 
unenumerated 
articles. 

Merchants' 
and  Mfrs.' 
stock,  and 

moneys  and 
credits. 

P^  —  Q* 
O  3 

1844  

20,667,271 

783,238 

7,  550,  005 

29,OOO,5I4 

1845.. 

21  274  824 

I  O55  742 

13  556  507 

35  887,073 

1846  

13,626,572 

1,485.277 

2,545,003 

22,695,554 

40,352,496 

1847.. 

29  105  088 

3  065  464 

43.841.530 

70,876.703 

1848  

3O.QO  5  147 

-3  74.1  420 

ooi  o8-104 

47  462  313 

85,880,874 

-yoj 

102Aud.   rep.,   Dec.   u,    1847.     At  seven  mills  on  the  dollar,  the  tax 
would  have  yielded  $1,052,052,  or  a  difference  of  $103,055  in  two  years. 
103Aud.  rep.,  Dec.  15,  1846. 
I(MUnenumerated  articles  only. 


219]  THE  GENERAL  PROPERTY  TAX  219 

In  1847  the  fourth  general  revaluation  of  the  real 
property  of  the  state  was  made,  as  required  by  the  law  of 
1846,  and  amounted  after  equalization  to  $324,495,804. 
This  form  of  property  now  for  the  first  time  approximated, 
though  still  remotely,  its  actual  value.105  The  total  grand 
list  for  this  year  exhibited  an  aggregate  of  $410,763,160, 
of  which  personalty  contributed  20  per  cent.106 

As  was  inevitable  in  the  case  of  such  a  comprehensive 
and  sweeping  law  as  the  "Kelley  act",  amendments  and 
corrections  were  necessary.  In  1847  a  feature  was  added 
to  which  the  present  inquisitorial  system  in  the  state  may 
be  traced.  The  auditor  was  authorized  to  correct  false 
returns  after  notice  to  the  tax  payer,  and  to  file  in  his  office 
a  statement  of  the  facts  or  evidence  upon  which  he  made 
such  correction.107  A  penalty  of  50  per  cent  was  imposed 
if  taxable  property  were  not  returned.  In  1848  book 
credits  to  the  amount  of  $200  were  exempted  and  liquidated 
credits  to  the  amount  of  $100  ;108  this  was  done  because  of 
the  difficulties  experienced  in  trying  to  reach  these  objects. 
In  1849,  all  lands  hereafter  sold  by  the  United  States  in 
Ohio  were  made  subject  to  taxation.109  Since  1802  such 
lands  had  been  exempt  for  5  years  from  the  date  of  sale 

105Gov.  Mess.  Exec.  Doc.,  1859,  II,  32. 

106The  valuation  and  taxes  before  and  after  the  revaluation  under  the 
new  tax  law  are  given  for  the  years  1844-48  in  the  following  table : 

Years  Valuation  Rate  of  Tax  Amount  Collected 

1844 $136,142,666                7       mills                $   942,608 

1845 144,160,469                7       mills                    989,883 

1846 150,293,132                8       mills                  1,208,562 

1847 410,763,160                2.75  mills                  1,132,398 

1848 421,067,991                3       mills                -1,240,000 

Kettell,  writing  at  this  time  in  Hunt's  Merchant's  Magazine  (21:409), 
stated  that  "the  taxes  have  been  paid  with  the  most  extraordinary  punctu- 
ality". In  1848  the  aggregate  amount  of  state  and  local  taxes  in  New 
York  was  $5,295,598,  or  only  $2,000,000  more  than  those  in  Ohio  for  the 
same  year. 

107Act  of  Feb.  8,  1847,  sec.  14. 

losAct  of  Feb.  22,  1848. 

"•Act  of  March  8,  1849. 


220  FINANCIAL  HISTORY  OF  OHIO  [220 

under  the  act  of  Congress  to  which  Ohio  assented  when  she 
entered  the  Union.  By  another  act  of  January  26,  1847, 
Congress  removed  this  restriction,  and  assented  to  their 
taxation  from  the  date  of  their  sale ;  Ohio  accordingly  took 
advantage  of  this  opportunity  to  add  these  lands  to  the  list 
of  taxable  property,  as  soon  as  they  passed  into  private 
hands. 

In  1851  the  total  sources  and  amounts  of  taxes  in  the 
state  were  as  follows:110 

PROPERTY.111 

Lands   $269,010,542 

Towns    77,320,691 

Personal    104,495,278 

J't  Stock  Cos 1,821,193 


Total 452,657,708 

TAXES.1U 

State    tax   on   prop $1,621,228 

State  tax   on  jt.   st.   cos 18,030 

State  tax  on  professions   9,034 

Co.,  sch.,  and  township 2,117,106 

Road    244,01 1 

Special   662,422 


Total    4,671,831 

In  1851  a  long  act  of  seventy-two  sections  was 
passed,112  "for  the  assessment  of  all  property  in  this  state, 
and  for  levying  taxes  thereon  according  to  its  true  value", 
repealing  and  replacing  the  law  of  March  2,  1846.  The 
changes  introduced  were  few  and  unimportant,  the  chief 
one  being  an  extension  of  the  list  of  exemptions  to  include : 
one  man's  saddle  and  bridle,  one  woman's  saddle  and  bri- 
dle, one  loom  not  exceeding  $10  in  value,  firearms  kept  for 
the  use  of  the  owner,  bees  to  the  value  of  $10,  cash  on  hand 
to  the  amount  of  $25,  and  books  used  by  a  student.  This  is 
interesting  as  evidencing  the  primitive  development  of 

"°Aud.  rep.,  1851,  p.  5. 

"'Does  not  include  bank  stock  or  taxes  thereon. 

"2Act  of  March  25,  1851. 


221]  THE  GENERAL  PROPERTY  TAX  221 

Ohio  even  yet,  for  it  is  essentially  the  list  of  a  pioneer 
farmer.  Slight  changes  were  also  made  in  the  county  and 
state  boards  of  equalization.  As  the  act  was  not  to  go 
into  force  until  December  1,  1851,  and  before  that  date 
was  rendered  obsolete  by  the  new  constitution,  it  never 
became  operative. 

III.  THE  GENERAL  PROPERTY  TAX  UNDER  THE  CONSTITU- 
TION OF  1851,  1851-1910. 

THE  CONSTITUTIONAL  PROVISIONS 

The  dissatisfaction  with  the  partiality  exhibited  by 
the  legislature  towards  certain  fori^s  of  property  nml 


tain  favored  corporations  wff^lflTTt"  jrlfcT^t^ner  allayed^  by" 
the  act  of  1  846.  ^TFenrn^F^f  equality  inHESitfon  was  recog- 
nized  as  a  general  principle,  but  there  were  still  many 
exceptions,  and  the  feeling  was  strong  that  it  must  be 
enforced  universally.  It  was  held  that  the  only  safe  way 
to  guard  the  interests  of  the  people  was  to  withdraw  all 
matters  in  which  selfish  interests  were  opposed  to  those 
of  the  people  from  legislative  caprice,  and  to  regulate  them 
in  the  organic  law  of  the  state  itself.  Under  these  in- 
fluences the  constitutional  convention  met  in  1850. 

No  change  had  been  made  in  the  constitution  since 
1802,  when  Ohio  had  entered  the  Union,  and  the  funda- 
mental instrument  that  had  been  drawn  up  at  that  time 
was  felt  to  be  quite  inadequate  to  meet  the  very  different 
conditions  which  existed  a  half  century  later.  In  the 
interval,  Ohio  had  developed  from  a  pioneer  agricultural 
state  to  a  highly  diversified  one,  in  which  the  growth  of 
cities,  of  manufactures,  corporations,  and  many  new  forms 
of  wealth  offered  new  problems  to  the  legislature  in  the 
establishment  of  an  equitable  system  of  taxation.  Banks 
and  intangible  personalty  especially  had  escaped  their  due 
share  of  the  tax  burdens,  the  former  because  of  the  desire 
to  promote  them  and  the  latter  because  of  the  difficulty  of 
finding  them,  and  now  the  effort  was  made  to  subject  them 
both  to  taxation  in  the  same  proportion  as  other  forms  of 


222  FINANCIAL  HISTORY  OF  OHIO  [222 

property.  This  was  provided  for  in  sections  2  and  3  of 
Article  XII.  Section  1  was  copied  verbatim  from  the 
earlier  constitution  of  1802.  The  important  section  of  the 
new  constitution  is,  however,  section  2,  in  which  the  phrase 
"by  a  uniform  rule"  has  determined  the  whole  subsequent 
development  of  taxation  in  Ohio.  It  also  proved  to  be  a 
most  serious  obstacle  to  reform,  when  it  became  clear  that 
the  principles  of  the  general  property  tax  were  inadequate, 
if  not  contradictory,  to  the  development  of  an  equitable 
system  of  taxation.  The  sections  of  Article  XII  of  the 
constitution,  pertaining  to  taxation,  are  as  follows : 

Section  I.  The  levying  of  taxes  by  the  poll  is  grievous  and  oppres- 
sive, therefore  the  general  assembly  shall  never  levy  a  poll  tax  for  county 
or  state  purposes. 

Section  II.  Laws  shall  be  passed,  taxing  by  a  uniform  rule,  all 
moneys,  credits,  investments  in  bonds,  stocks,  joint  stock  companies,  or 
otherwise ;  and  also  all  real  and  personal  property  according  to  its  true 
value  in  money ;  but  burying  grounds,  public  schoolhouses,  houses  used 
exclusively  for  public  worship,  institutions  of  purely  public  charity,  pub- 
lic property  used  exclusively  for  any  public  purpose,  and  personal  prop- 
erty, to  an  amount  not  exceeding  in  value  two  hundred  dollars,  for  each 
individual,  may,  by  general  laws,  be  exempted  from  taxation ;  but  all 
such  laws  shall  be  subject  to  alteration  or  repeal;  and  the  value  of  all 
property,  so  exempted,  shall,  from  time  to  time,  be  ascertained  and  pub- 
lished as  may  be  directed  by  law. 

Section  III.  The  general  assembly  shall  provide  by  law  for  taxing 
the  notes  and  bills  discounted  or  purchased,  moneys  loaned,  and  all 
other  property,  effects  or  dues,  of  every  description,  without  deduction, 
of  all  banks  now  existing  or  hereafter  created,  and  all  bankers,  so  that 
all  property  employed  in  banking  shall  always  bear  a  burden  of  taxa- 
tion equal  to  that  imposed  on  the  property  of  individuals.113 

113The  other  sections  of 'Article  XII,  which  do  not  so  closely  relate  to 
this  subject,  are  as  follows : 

Section  IV.  The  general  assembly  shall  provide  for  raising  reve- 
nue sufficient  to  defray  the  expenses  of  the  state  for  each  year,  and  also 
a  sufficient  sum  to  pay  the  interest  on  the  state  debt. 

Section  V.  No  tax  shall  be  levied  except  in  pursuance  of  law  and 
every  law  imposing  a  tax  shall  state  distinctly  the  object  of  the  same,  to 
which  only  it  shall  be  applied. 

Section  VI.  The  state  shall  never  contract  any  debt  for  purposes  of 
internal  improvement. 


223]  THE  GENERAL  PROPERTY  TAX  223 

The  principle  laid  down  in  these  sections  was  the 
abrogation  of  all  arbitrary  taxation,  and,  in  view  of  the 
previous  history  of  taxation  in  the  state,  must  be  regarded 
as  marking  a  distinct  advance.  "Man,  as  such,  his  busi- 
ness, occupation,  and  profession,  are  no  longer  subject  to 
legislative  caprice.  Property  is  the  measure  and  basis  of 
taxation.'-114  But  while  this  marked  an  advance  over  the 
past,  the  inclusion  of  these  rules  in  the  constitution  crys- 
tallized them  and  prevented  any  further  advance,  as  will 
appear  later.  A  few  exemptions  were  authorized,  but  these 
wrere  for  objects  of  general  interest,  as  to  which  there  could 
be  little  or  no  objection. 

THE  ACT  OF   1852. 

The  adoption  of  the  new  constitution  in  1851  necessi- 
tated a  complete  revision  of  the  tax  laws,  in  order  to 
bring  their  provisions  into  conformity  with  the  require- 
ments of  the  constitution.  This  was  done  by  the  compre- 
hensive act  of  April  13,  1852,  containing  seventy-eight  sec- 
tions, "for  the  assessment  and  taxation  of  all  property  in 
this  state,  and  for  levying  taxes  thereon  according  to  its 
true  value  in  money."  This  act  embodied  the  principles 
of  the  new  constitution,  and  is  the  beginning  of  the  attempt 
to  tax  all  property  under  the  same  law  by  uniform  methods. 
The  general  property  tax  now  remained  for  some  years 
practically  the  sole  source  of  revenue;  but  the  inadequacy 
and  inequitableness  of  this  system  gradually  led  to  the 
splitting  up  of  this  complex  of  taxes  into  parts,  and  the 
imposition  of  separate  taxes.  The  following  are  the  main 
provisions  of  this  important  act:115 

Section  1  provided 

that  all  property,  whether  real  or  personal,  in  this  state,  all  moneys, 
credits,  investments  in  bonds,  stocks,  joint  stock  companies,  or  otherwise, 
of  persons  residing  therein ;  the  property  of  corporations  now  existing 
or  hereafter  created,  and  the  property  of  all  banks  or  banking  companies, 

114Gov.  Mess.,  Exec.  Doc.,  1855,  I,  14. 

115Some  verbal  amendments  were  made  by  the  act  of  March  14,  1853, 
but  otherwise  the  law  remained  practically  unchanged  until   1859. 


224  FINANCIAL  HISTORY  OF  OHIO  [224 

now  existing,  or  hereafter  created,  and  of  all  bankers,  except  such  as  is 
hereinafter  expressly  exempted,  shall  be  subject  to  taxation;  and  such 
property,  moneys,  credits,  investments  in  bonds,  stocks,  joint  stock  com- 
panies or  otherwise,  or  the  value  thereof,  shall  be  entered  on  the  list  of 
taxable  property,  for  that  purpose,  in  the  manner  prescribed  by  this  act. 

Section  2  contained  definitions  of  the  various  terms  used : 
personal  property  was  defined  to  include116  (1)  every 
tangible  thing  other  than  money,  (2)  capital,  undivided 
profits,  etc.,  of  all  companies,  (3)  moneys  and  credits. 
The  list  of  exemptions  (sec.  3)  included  school  houses 
and  colleges,  burying  grounds,  state  or  United  States 
property,117  county  property,  poor  houses,  charitable  insti- 
tutions, fire  apparatus,  markets  and  public  squares,  per- 
sonal property  in  value  not  over  $200.118  No  person  was 
required  to  list  uncollectible  credits,  or  investments  in 
companies  which  were  required  to  list  their  property  for 
taxation. 

The  next  five  sections  provided  by  whom,  where,  and 
in  what  manner  property  should  be  listed,  and  did  not 
differ  materially  from  the  rules  laid  down  in  the  act  of 
1846.119  The  rules  of  appraisement  were,  however,  much 
stricter,  and  provided  that  real  estate  should  be  valued  at 
its  true  value  in  money,  "but  the  price  for  which  such  real 
property  would  sell  at  auction,  or  at  a  forced  sale,  shall 
not  be  taken  as  the  criterion  of  such  true  value" ;  personal 
property  was  to  be  valued  at  the  usual  selling  price,  invest- 
ments at  their  true  value,  and  money  and  credits  at  their 
full  value. 

Section  10  occasioned  a  great  deal  of  trouble  before 
the  matter  was  finally  adjusted;  it  stated  that  bona  fide 
debts  might  be  deducted  from  money  and  credits.  Excep- 
tion was  taken  to  this  on  the  ground  that  it  infringed 
against  the  second  section  of  Article  XII  of  the  constitu- 
tion providing  for  uniform  treatment  of  all  taxable  prop- 

"'Cf.  Act.  of  1846,  p.  216. 

"'State  bonds  were  added  by  Act  of  April  i,  1856. 
usReduced  to  $50  by  act  of  March  12,  1853. 
"'See  p.  217. 


225]  THE  GENERAL  PROPERTY  TAX  225 

erty.  In  February,  1854,  the  Supreme  Court  of  Ohio 
upheld  this  view  and  declared  this  section  of  the  act  to  be 
unconstitutional,  on  the  ground  that  as  no  deductions  lor 
debt  were  permitted  in  the  case  of  real  estate  or  other 
tangible  property,  it  was  unreasonable  to  permit  it  in  this 
instance.  These  objections  were  met,  however,  by  the  act 
of  April  1,  1856,  which  subjected  to  taxation  only  the 
excess  of  credits  over  debts,  and  doubled  the  tax  if  an 
attempt  were  made  to  evade  it  by  fradulent  conveyances. 

The  methods  of  listing  and  valuing  the  property  of 
merchants  and  manufacturers,  and  of  bankers,  exchange 
brokers,  and  stock  jobbers  were  prescribed  in  sections 
12-18.  In  the  case  of  merchants  and  manufacturers  the 
average  monthly  value  of  all  their  property  during  the 
past  year  was  to  be  taken,  and  in  the  case  of  bankers, 
brokers,  and  jobbers  the  value  of  all  moneys,  stocks,  etc. 
Bankers  (sec.  19-22)  must  return  (1)  the  average  amount 
of  notes  and  bills  discounted  during  the  past  year,  and 
(2)  the  average  amount  of  all  other  loans.  Canal,  rail- 
road, turnpike,  insurance,  bridge,  telegraph,  and  other 
companies  "shall  list  for  taxation,  at  its  actual  value,  its 
real  and  personal  property,  moneys  and  credits,  within 
this  state."  Property  was  to  be  returned  to  auditor  of  the 
county  where  it  was  situated,  and  moveable  property  was 
apportioned  pro  rata  according  to  the  value  of  the  fixed 
property. 

The  powers  and  duties  of  township  assessors  were 
prescribed  carefully  (sec.  23-32)  :  one  assessor  was  to  be 
elected  in  each  township  who  was  to  assess  personal  prop- 
erty every  April  and  May,  and  to  return  his  lists  to  the 
county  auditor  in  the  latter  month.  District  assessors 
(sec.  33-39)  were  to  be  elected  once  in  six  years  for  the 
purpose  of  assessing  "from  actual  view''  the  value  of  all 
real  property  and  buildings,  of  which  he  must  make  his 
return  to  the  county  auditor  in  September;  each  county 
was  to  be  divided  by  the  county  commissioners  into  four 
districts  every  six  years  for  this  purpose. 

The  county  auditor  was  the  pivot  of  the  whole  system 


226  FINANCIAL  HISTORY  OF  OHIO  [226 

(sec.  40-52) ;  all  returns  must  be  sent  to  him  and  from 
these  a  duplicate  or  tax  list  of  the  county  made  out,  an 
abstract  of  which  he  must  send  to  the  state  auditor  in 
October.  In  case  of  a  refusal  on  the  part  of  a  tax-payer 
to  list  his  property,  the  auditor  was  directed  to  add  a  50 
per  cent,  penalty;  he  also  added  omitted  lands  and  cor- 
rected false  statements.  No  penalty  seems  to  have  been 
imposed  for  the  latter,  but  on  the  other  hand  the  auditor 
was  compelled  to  pay  the  costs  of  the  investigation,  if  his 
suspicions  were  incorrect;120  it  is  difficult  to  see  what 
incentive  he  could  have  had  to  institute  an  inquiry.  The 
duty  of  the  county  auditor  as  to  making  tax  lists  and 
duplicates,  and  assessing  taxes,  was  set  forth  at  great 
length  (sec.  63-78).  It  was  the  duty  of  the  state  auditor 
to  transmit  every  sixth  year  the  statement  of  the  state 
board  of  equalization  to  the  county  auditor,  and  to  notify 
him  each  July  of  the  rate  of  taxation  for  the  state,  for 
schools,  etc.  (sec.  58-59). 

Three  boards  of  equalization  were  provided  for.  The 
annual  county  board,  consisting  of  the  county  commis- 
sioners and  county  auditor,  met  every  May  for  the  equaliza- 
tion of  real121  and  personal  property  (sec.  60-62).  The 
county  board,  consisting  of  county  commissioners,  auditor, 
surveyor,  and  district  assessors,  met  every  sixth  year  in 
September,  to  equalize  the  values  of  the  real  property  of 
the  state,  which  was  to  be  revalued  every  six  years  (sec. 
53-55).  The  state  board  of  equalization,  consisting  of  the 
state  auditor  and  one  member  elected  from  each  senatorial 
district  of  the  state,  met  every  sixth  year  in  November  to 
equalize  the  returns  sent  up  from  the  different  counties. 
They  were  forbidden,  however,  to  reduce  the  aggregate 


"This  was  changed  in  act  of  April  5,  1859,  §  34,  so  as  to  place  the 
costs  upon  the  tax-payer,  unless  he  was  shown  to  be  innocent  of  wrong 
intention. 

mAn  amendment  of  May  i,  1852,  provided  that  real  estate  was  to  be 
taxed  as  valued  until  a  new  revaluation  was  made.  Only  new  improve- 
ments could  be  equalized,  therefore. 


227]  THE  GENERAL  PROPERTY  TAX  227 

valuation  of  the  counties  more  than  ten  million  dollars 
(sec.  56-57). 

A  general  valuation  of  real  property  was  ordered  for 
1853  and  every  sixth  year  thereafter.  The  aggregate  of 
the  equalized  valuation  was  $558,725,542.  The  personal 
property  listed  the  following  spring  was  valued  at  $297,- 
061,572,  so  that  the  grand  list  for  1854,  including  the 
values  of  lands  and  new  improvements  listed  in  the  spring, 
was  $866,929,982.  "The  increase  in  seven  years  had  been 
again  startling,"  wrote  Governor  Chase.  "It  was  $456,- 
166,822.  The  appraised  now  more  closely  approached  the 
real  value,  and  no  such  apparently  rapid  augmentation  of 
the  list  could  be  in  future  expected.''122  The  following 
table  shows  the  effects  of  the  law  of  1852  and  of  the  valua- 
tion of  real  property  in  1852  upon  the  amount  of  property 
returned  for  taxation : 

Real  Property  Personal  Property          Total 

Year  In  towns       Not  in  towns 

1852    $8i,5S8,374        $2/3,378,773        $152,644,763        $507,581,911 

1853     85,321,192          278,169,709          229,905,947          593,396,848 

In  1852,  real  estate  paid  70  per  cent,  of  all  the  taxes, 
but  in  1853  this  proportion  had  been  reduced  to  62  per  cent.? 
owing  to  the  large  amount  of  personal  property  subjected 
to  taxation.  As  the  largest  increase  is  shown  in  the 
schedules  of  personal  property  it  will  be  of  interest  to  take 
up  some  of  the  more  important  items  in  detail  and  note 
the  changes.  This  is  shown  iu  the  table  on  page  228. 

The  large  increase  in  domestic  animals — 78  per  cent.— 
was  probably  partly  due  to  an  undervaluation  of  this 
species  of  property  in  1852.  Pleasure  carriages  now  for 
the  first  time  included  wheel  vehicles  of  every  variety, 
which  accounts  for  the  very  large  increase  in  the  second 
item.  The  value  of  property  pertaining  to  merchandise 
and  manufacturing  did  not  at  all  correspond  to  the  actual 
amount  invested  in  these  businesses,  but  was  slowly  in- 
creasing. The  greatest  relative  increase  was  shown  in  the 

MGov.   Mess.,  Exec.  Doc.,  1859,  H,  32. 


228 


FINANCIAL  HISTORY  OF  OHIO 


[228 


Personal   Property   Returned  for  Taxation,   1852-3    (in  millions) 


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property  returned  by  brokers  and  private  bankers,  who 
were  being  fairly  taxed  for  almost  the  first  time. 

As  the  system  of  taxation  was  improved  and  a  larger 
proportion  of  the  taxable  property  in  the  state  was  re- 
turned, complaints  began  to  be  made  of  the  increasing 
burden  of  high  taxes.123  In  1855  the  taxes  levied  in  Ohio 
were  as  follows: 

Total   state  taxes    $2,754,808 

Total  county  taxes   2,762,305 

Total  township,  city,  and  special  taxes 2,943,618 

It  will  be  seen  that  the  state  taxes  made  up  barely 
one-third  of  the  total,  so  that  complaints  were  more  justly 
directed  against  those  levied  by  the  counties.  In  addition 
to  the  direct  taxes  there  were  numerous  fees  paid  to  county, 
township,  and  other  local  officers,  of  which  no  account  was 
kept  that  was  accessible  to  the  public.  There  had  been  a 
notable  increase  of  the  taxes  since  1846,  when  the  general 
property  tax  had  been  fully  introduced,  and  here  again 

""Aud.  rep.,  1854;  Gov.  Mess.,   1855,  p.   10;  Gov.  Mess.,   1859,  Exec. 
Doc.,  II,  93;  Rep.  Com'r.  of  Stat.,  1859,  Exec.  Doc.  I,  799. 


229]  THE  GENERAL  PROPERTY  TAX  229 

the  greatest  gain  was  shown  by  the  local  governments. 
Between  1846  and  1859  the  state  taxes  increased  165  per 
cent,  and  the  local  taxes  329  per  cent.  The  same  fact  was 
illustrated  by  the  respective  increases  of  the  tax  rates: 
Rate  of  state  tax  in  1847  was  2.8  mills ;  in  1859,  3.5  mills 
Rate  of  local  tax  in  1847  was  3.9  mills;  in  1859  7.7  mills 
Perhaps  because  of  the  burdens  imposed,  an  act  of  the 
latter  year124  provided  for  the  semi-annual  collection  of 
taxes,  the  tax-payer  being  given  the  privilege  of  paying 
one-half  his  taxes  on  December  20  and  the  other  half  on 
June  20.  In  the  same  year  the  sixth  general  valuation  of 
real  property  took  place,  and  the  returns  showed  an 
increase  in  the  valuation  since  1853,  of  about  15  per  cent. 
The  value  of  the  realty  was  raised  from  $584,114,004  in 
1859  to  $639,894,311  in  1860.  The  personalty  showed  a 
decline,  however,  from  $251,795,937  to  $248,408,290,  so  that 
the  aggregate  gain  on  the  grand  list  was  only  about  $42,- 
000,000.  The  state  taxes  for  1860  amounted  to  $3,503,713. 

THE  ACT  OF  1859. 

The  act  of  April  5, 1859,125  was  simply  a  codification  of 
previous  laws  on  the  subject  of  taxation,  and  brought  to- 
gether in  one  comprehensive  act  the  matter  contained  in 
many  scattered  acts,  especially  those  concerning  bankers, 
brokers,  etc.  Little  new  matter  was  added  to  previous 
legislation,  though  in  some  cases  more  careful  definitions 
were  framed,  or  errors  discovered  in  the  act  of  1852  were 
corrected.  Credits  were  defined  as  the  "excess  of  legal 
claims  over  bona  fide  debts",  thus  permitting  the  deduction 
of  debts  from  personalty.  The  amount  of  personal  prop- 
erty exempted  for  each  individual  was  limited  to  $50. 

Corporations  and  joint  stock  companies  were  to  be 
taxed  like  individuals,  except  banking  corporations  for 
which  special  provision  was  made  (sec.  60-68).  Banks 
were  to  return  annually  in  May  (1)  the  average  amount 
of  notes  and  bills  discounted,  (2)  the  average  amount  of 

124Act  of  April  2,  1859.     O.  L.,  1859,  p.  101. 

125O.  L.,   1859,  pp.   175-218;  2  Swan  and  Critchfield,  1438. 


230  FINANCIAL  HISTORY  OF  OHIO  [230 

all  moneys,  etc.,  loaned,  invested,  or  otherwise  used  with 
a  view  to  profit,  less  the  amount  of  specie  reserve  on  hand. 
Taxes  should  be  paid  to  the  state  treasurer  and  by  him 
distributed  to  the  counties  and  townships  in  which  the 
banks  were  situated.  A  new  feature  was  that  regarding 
the  "non-resident  personal  tax"  (sec.  85-91),  which  seems 
to  indicate  both  successful  efforts  to  evade  the  taxes  on 
personalty,  and  attempts  on  the  part  of  legislators  and 
officials  to  check  the  evasion.  The  county  treasurers  were 
to  notify  one  another  when  a  tax-payer  moved  out  of  one 
county  into  another  in  the  state,  and  back  taxes  were  to  be 
collected,  if  any  were  due,  by  the  second  county  treasurer ; 
such  taxes  were  to  be  distributed  to  the  counties  to  which 
they  belonged. 

On  one  point  the  legislators  did  not  seem  able  to  make 
up  their  minds,  and  that  was  as  to  the  frequency  of  re- 
valuations of  real  property  in  the  state.  Frequent  ap- 
praisements were  expensive,  but  if  too  long  a  time  elapsed 
between  valuations  then  injustice  was  done.  The  law  of 
1852  had  provided  for  sexennial  valuations  and  this  was 
repeated  in  the  act  of  1859,  which  fixed  the  next  one  for 
1864.  By  the  act  of  April  7,  1863,  the  date  was  postponed 
to  1868  and  the  valuations  were  made  decennial;  another 
postponement  to  1869  was  made  by  the  act  of  May  8,  1868. 
These  various  changes  necessitated  other  changes  in  the 
provisions  governing  the  meetings  of  the  boards  of  equali- 
zation. The  duties  and  composition  of  these  boards  were 
unchanged.126  The  powers  and  duties  of  the  county 
auditor,  which  had  expanded  enormously  with  the  develop- 
ment of  the  system  were  carefully  codified  in  a  long  act, 
containing  fifty-seven  sections,  passed  April  4, 1859.127  He 
was  to  be  elected  for  two  years;  indeed  all  the  officials 

128An  amendment  of  April  18,  1874  (O.  L.,  p.  92;  2  Sayler  1645)  pro- 
vided that  the  county  boards  of  equalization  should  not  reduce  the  value 
of  the  real  property  in  any  county  below  the  aggregate  value  as  fixed  by 
the  state  board,  nor  below  its  aggregate  value  on  the  duplicate  of  the 
preceding  year,  excepting  that  in  oil  counties  where  oil  was  exhausted  the 
aggregate  value  might  be  reduced. 

**O.  L.,  1859,  PP.  128,  ff. 


231]  THE  GENERAL  PROPERTY  TAX  231 

named  in  these  acts  were  now  elective  instead  of  appointive. 

The  laws  respecting  delinquent  taxes,  methods  of  en- 
forcement and  penalties,  were  gradually  being  developed, 
as  experience  showed  the  weak  points.  In  1857128  it  was 
provided  that  if  one-half  the  tax  charged  against  lands 
should  not  be  paid  by  December  26,  it  should  be  charged 
on  the  duplicate  with  30  per  cent,  penalty  and  interest ;  if 
this  were  not  paid,  together  with  remaining  half  of  the 
tax,  by  June  20,  then  the  lands  were  to  be  placed  on  the 
delinquent  list.  At  the  March  meeting  of  the  county  com- 
missioners the  delinquent  list  for  five  years  previous  was 
to  be  read,  and  they  wrere  to  try  to  collect  the  unpaid  taxes 
with  interest.129  Lands  forfeited  for  non-payment  of 
taxes  were  to  be  advertised  and  sold  by  the  county 
treasurer  on  the  third  Tuesday  in  January.  Lands  sold 
for  taxes  at  delinquent  sales  might  be  redeemed  in  two 
years,  but  in  that  case  the  former  owner  must  pay  for  all 
improvements.130 

The  new  constitution  had  now  been  in  force  for  almost 
a  decade  and  its  principles  had  been  presumably  carried 
out  in  two  comprehensive  tax  laws.  Had  the  standards  of 
equity,  uniformity,  and  no  discrimination  set  up  by  the 
constitution  been  carried  out  by  legislation  or  by  adminis- 
trative practice?  The  question  was  an  inevitable  one.  It 
was  raised  and  answered  by  Governor  Salmon  P.  Chase  in 
his  message  of  December,  I860.131 

12855  O.  L.,  65.    Later  the  penalty  was  reduced  to  20  per  cent. 

^Act  of  May  i,  1854,  52  O.  L.,  112.  This  act  made  it  the  duty  of  each 
county  treasurer  to  find  out  the  new  address  of  every  delinquent  tax 
payer  who  moved  away,  and  to  send  a  statement  of  the  taxes  assessed 
and  not  paid  to  the  county  treasurer  of  the  county  to  which  the  taxpayer 
moved.  This  treasurer  should  then  collect  all  such  taxes.  If  the  taxpayer 
moved  after  the  delivery  of  the  tax  duplicate,  a  penalty  of  25  per  cent 
was  to  be  added.  Delinquent  taxes  so  collected  were  to  be  distributed  to 
the  proper  counties. 

"°Act  of  April  5,  1859,  sec.  92-109.  Amended  by  act  of  April  n,  1865 
(Swan  and  Sayler,  781),  and  of  1877  (74  O.  L.  69)  which  provided  that  the 
former  owner  must  reimburse  the  purchaser  for  all  taxes,  penalties,  in- 
terest, etc.,  paid  by  him  to  the  state. 

™Exec.  Doc.,  1861,  I,  348. 


232  FINANCIAL  HISTORY  OF  OHIO  [232 

It  is  argued  by  some  that  a  successful  effort  is  yet  to  be  made  to  adapt 
our  tax  laws  to  the  constitution ;  that  by  the  present  law  different  kinds 
of  property  are  not  treated  by  a  uniform  rule,  but  are  valued  by  different 
methods  and  at  dissimilar  periods ;  that  the  obvious  meaning  of  \vords 
in  the  constitution  has  been  perverted  by  legislative  defin:tions  contrary 
to  their  true  meaning,  by  reason  of  which  some  classes  of  property  are 
twice  taxed,  and  other  classes  not  taxed  at  all;  that  the  exemptions 
provided  for  in  the  constitution  have  been  overstepped;  that  no  man  is 
now  ta.xed  cither  according  to  the  value  of  what  he  owns  or  what  he  is 
worth. 

But  in  his  inaugural  address  a  few  weeks  later  the  gov- 
ernor132 designated  the  system  of  taxation  in  force  "as  per- 
fect and  equitable  as  can  well  be  devised/'  .  .  .  "if 
faithfully  executed."  The  taxation  of  real  property  at  its 
true  value  in  money  he  thought  generally  well  attained,133 
but  that  a  large  amount  of  invisible  property,  particularly 
money  and  credits,  escaped  taxation.  He  recommended 
that  "more  severe  penalties,  certain  of  enforcement,  be 
provided  for  failures  to  give  in  to  the  assessors  this  species 
of  property."  This  easy  method  of  meeting  the  evil  was 
simplified  still  further  by  the  auditor  in  his  report  for 
1864.  After  calling  attention  to  the  fact  that  a  large 
amount  of  property  escaped  taxation,  he  concluded:134 
"The  remedy  for  this  evil  is  very  easy  of  attainment:  re- 
quire every  man  to  swear  simply,  that  he  has  listed  all  his 
property." 

THE  CIVIL  WAR  PERIOD. 

With  the  outbreak  of  the  Civil  War  new  problems  pre- 
sented themselves.  There  was  less  discussion  of  method 
and  more  of  means.  Under  the  stress  of  necessity  and  the 

™Exec.  Doc.,  1861,  I,  484. 

^A  comparison  of  the  census  tables  of  taxable  property  in  Ohio, 
which  undertook  to  give  the  real  value,  shows  that  the  assessed  values 
come  very  close  to  these  (Rep.  Com'r.  of  Stat.  Exec.  Doc.,  1862,  I,  460)  : 

Assessed  value  Real  value 

1850  $433,872,632  $  504,726,120 

1860  959,867,101  1,193,898,422 


Increase  525,994,469  689,172,302 

™Exec.  Doc.,  1864,  I,  224.    Italics  in  original. 


233]  THE  GENERAL  PROPERTY  TAX  233 

impulse  of  patriotism  large  sums  were  raised  by  means  of 
taxation  without  a  murmur  of  complaint.  A  system  that 
displayed  many  weak  points  when  every  effort  was  being 
made  to  evade  taxes,  easily  yielded  large  revenues  when 
the  tax-payers  responded  fairly  to  the  calls  upon  them. 
Additional  funds  were  raised  to  defray  the  expenditures 
caused  by  the  war,  not  by  the  slow  imposition  of  new  taxes, 
as  in  the  case  of  the  federal  government,  but  simply  by 
raising  the  rate  of  the  general  property  tax.  Criticism  of 
the  tax  system  died  out  of  the  official  reports  and  messages 
absolutely;  on  the  other  hand  much  satisfaction  and  pride 
were  expressed  in  both  the  system  and  the  results. 

The  valuations  of  property  and  the  taxes  levied  in 
Ohio  during  the  four  years  of  the  war  are  shown  in  the 
following  table  (in  millions)  : 

Total  of  all 

Value  of        Value  of    Total  Value    State  Tax     Property 
Realty         Personalty  of  Taxable  Taxes 

Year  Property  (State  and 

Local) 

1860  $640      $248      $888      $3.5      $10.8 

1861  635  249  893  4.0  1 1.6 

1862  646  244  889  4.1  10.1 

1863  650  287  936  4.7  11.7 

1864  655  351  1.007  5-3  16.6 

1865  661  409  1,070  5.7  20.9 

It  will  be  noticed  that  while  the  state  taxes  were 
increasing,  the  aggregate  taxes,  during  the  first  three  years 
of  the  war  at  least,  did  not  show  a  corresponding  growth. 
The  reason  for  this  was  the  introduction  of  considerable 
economies  in  ordinary  civil  expenditures.  Thus,  while  the 
state  taxes  for  war  purposes  increased  from  312  thousand 
dollars  in  1801  to  844  thousand  in  1802,  there  was  a  saving 
of  half  a  million  each  in  state  taxes  for  other  purposes  and 
in  county  taxes  and  over  a  million  dollars  in  city,  town, 
and  special  taxes,  reducing  the  aggregate  burden  on  the 
people  by  one  and  one-half  million  dollars.  Not  until 
18P>4  and  1865  was  there  any  marked  increase  in  the  total 
of  all  taxes,  and  this  was  due  almost  entirely  to  the  expan- 


234  FINANCIAL  HISTORY  OF  OHIO  [234 

sion  of  local  taxation  and  expenditures.  Part  of  this 
was  attributable  to  the  war  itself,  as  in  the  case  of  levies 
for  the  payment  of  bounties  to  soldiers,  and  indirectly 
because  of  the  higher  prices  brought  about  by  the  over- 
issue of  depreciated  paper  money ;  but  the  larger  part  was 
due  to  the  growth  of  cities  and  towns  and  the  increase  of 
expenditures  for  various  purposes  of  town  comforts  and 
conveniences.135  The  war  itself  then  can  scarcely  be  said 
to  have  entailed  any  considerable  extra  burden  of  taxation 
upon  the  people  of  Ohio,  except  in  so  far  as  it  involved  a 
diversion  of  expenditures  from  productive  into  unproduc- 
tive channels,  and  prevented  the  immediate  satisfaction  of 
legitimate  local  or  state  wants. 

The  readiness  with  which  Ohio  responded  to  the  call 
of  the  federal  government  for  financial  support  was  well 
illustrated  by  the  action  of  the  state  in  regard  to  the 
direct  tax  laid  upon  the  states  by  act  of  Congress  of 
August  5,  1861.  The  total  tax  was  $20,000,000,  and  Ohio's 
quota,  apportioned  according  to  the  number  of  her  repre- 
sentatives in  Congress,  amounted  to  $1,567,089.  It  was 
provided  that  any  state  might  assume  the  tax  as  a  state 
obligation,  otherwise  it  would  be  assessed  and  collected  by 
federal  officials ;  if  paid  before  July  1,  1862,  it  was  subject 
to  a  deduction  of  15  per  cent.,  and  of  10  per  cent,  if  paid 
before  October  1.  Ohio  assumed  the  tax  and  imposed  an 
additional  state  tax  of  1M  mills,  to  be  added  to  the  June 
levy.136  From  this  source  $380,000  in  money  was  paid  to 
the  Treasury  Department  at  Washington,  and  over  $1,000,- 
000  in  accounts  and  vouchers  for  moneys  expended  by  the 
state  for  the  military  service  of  the  United  States,  exceed- 
ing the  state's  quota  and  securing  for  it  the  discount  of 
15  per  cent. 

One  of  the  most  interesting  features  of  this  period  was 
the  promptness  with  which  all  taxes  were  paid,  and  the 
absence  of  complaints  or  attempts  at  evasion.  The  delin- 
quencies declined  to  less  than  one  per  cent. ;  in  1863  they 

135Rep.  Com'r.  of  Stat.     Exec.  Doc.,  1867,  I,  948. 
""Act  of  April  16,  1862.    O.  L.,  p.  52. 


235]  THE  GENERAL  PROPERTY  TAX  235 

were  %  of  one  per  cent.,  in  1862  they  were  1  per  cent.137 
The  delinquencies  and  costs  of  collection  together 
amounted  in  1860  to  3~y2  per  cent.;  in  1863  they  declined 
to  a  little  over  1  per  cent. ;  they  were  2  per  cent  in  1865 
and  1866,  after  which  the  good  effects  of  patriotism  seems 
to  have  worn  off,  so  far  as  evasion  of  taxes  was  concerned. 
For  1867  delinquencies  and  cost  of  collection  were  extra- 
ordinarily light  and  amounted  to  only  2.8  per  cent. ;  for 
the  following  years  they  were  somewhat  greater,  amount- 
ing in  1868  to  4.5  per  cent.,  1871  to  4.73  per  cent.,  and  for 
1872  to  4.63  per  cent.,138  which  was  probably  about  normal. 
An  interesting  table  was  compiled  by  the  commissioner 
of  statistics  in  1864,139  to  show  the  distribution  of  the  tax- 
able property  among  the  different  interests.  Agriculture 
was  shown  to  be  the  dominant  industry  and  to  bear  over 
two-thirds  of  the  taxes.  It  is  herewith  reproduced : 

Class  Taxable  Property  Percent 

Agriculture     $620,927,1 17  68 

Town  houses,  lots,  gas,  street  railways,  etc.          168,751,157  19 

Manufacturers'  and  mechanics'  capital 12,460,455  2 

Merchants'    and    brokers'    capital     (excl. 

money)        103,61 1,345  1 1 

Miscellaneous140    (incl.    money) 110,132,365  Pro-rated 

among  others 

The  appointment  of  a  tax  commission  to  revise  the  tax 
laws  was  urged  by  the  auditor  in  several  successive  re- 
ports,141 and  was  finally  authorized  by  act  of  March  18, 
1867.  They  were  to  report  what  changes  were  necessary 
to  systematize  and  make  consistent  the  existing  statutes  on 
taxation.  The  committee  of  finance  was  appointed  to  this 
task  and  in  the  following  session  brought  in  eight  bills  for 
enactment.  These  were  "somewhat  considered"  by  the 

"7Aud.  rep.,  Exec.  Doc.,  1863,  I,  54. 

138Aud.  rep.,  1864  p.  220;  1866,  p.  132;  1867,  p.  148;  1869,  p.  373;  1871, 
p.  198;  1872,  p.  351. 

13*8th  an.  rep.  Exec.  Doc.,  1864,  I,  741. 

""Includes  such  items  as  furniture,  carriages,  watches,  etc. 

141E.  g.  Aud.  rep.  in  Exec.  Doc.,  1866,  I,  134. 


236  FINANCIAL  HISTORY  OF  OHIO  [236 

legislature,142  but  only  one  of  them  was  passed.  This  was 
the  act  of  May  8,  1868,  which  codified  the  legislation 
regarding  the  division  of  counties  into  tax  districts,  the 
election  of  district  assessors,  returns  to  the  county  auditor, 
county  and  state  board  of  equalization,  the  annual  county 
board,  and  special  boards  in  cities.  No  changes  in  prin- 
ciple were  introduced. 

During  the  same  session  an  act  was  passed  requiring 
the  assessors  to  ascertain  and  report  all  bonds,  federal 
and  state,  and  legal  tender  notes  exempt  from  taxation, 
held  by  Ohio  tax-payers.143  The  returns  showed  $21,907,- 
795  of  such  exempt  property  held  in  the  state,  or  about 
5  per  cent,  of  the  value  of  chattel  property  listed  for  taxa- 
tion. This  evidently  seemed  to  the  legislature  worth  tax- 
ing, for  in  the  following  year  bonds,  treasury  notes,  and 
fractional  currency  of  the  United  States,  held  or  owned 
by  individuals,  companies  or  corporations  in  the  state, 
were  made  subject  to  taxation.144  A  statement  of  their 
amount  was  to  be  made  to  the  assessor  under  oath,  and 
they  were  to  be  taxed  locally.  This  law  was  later  declared 
unconstitutional. 

The  valuation  of  property  on  the  grand  duplicate  was 
increased  $32,545,858  in  1867  over  that  of  the  previous 
year.  This  the  governor  attributed  to  "the  increased  care 
and  accuracy  in  the  administration  of  the  law,  and  the 
growing  familiarity  of  local  boards  of  equalization  with 
their  duties."145 

A  re-appraisement  of  the  real  property  in  the  state 
was  made  and  equalized  in  1870,  as  a  result  of  which  the 
valuation  was  increased  from  $697,018,203  in  1869  to 
$1,025,619,034  in  1871.  At  the  same  time  there  was  a 
slight  increase  in  the  valuation  of  personalty  from  $459,- 
762,252  to  $476,510,937.  The  next  valuation  was  fixed 

142Gov.  Mess.,  1868,  p.  4.     No  report  of  this  commission  was  printed, 
as  it  was  only  a  statutory  commission. 

""Act  of  April  3,  1868.    Rep.  of  Sec.  of  State.    Exec.  Doc.,  1868,  I,  339- 
I44Act  of  May  /,  1869.    3  Sayler  2216. 
wExec.  Doc.,  1867,  I,  148. 


237]  THE  GENERAL   PROPERTY  TAX  237 

for  1880.14C  The  state  tax  for  1871  was  |4,350,728;  local 
taxes  meanwhile  had  grown  to  over  §18,600,000  or  five- 
sixths  of  the  total  amount  raised  in  the  state.  So  great 
was  the  increase  in  this  direction  that  the  governor  thought 
it  "wise  to  restrict,  by  legislative  enactment,  the  power 
of  minor  political  organizations  to  create  debts  and  impose 
taxes."147 

For  twenty  years  after  the  passage  of  the  act  of  1859 
there  was  practically  no  new  tax  legislation,  except  changes 
in  the  rates.  Indeed  so  completely  did  the  legislature 
keep  their  hands  off  this  subject  that  in  the  index  of  the 
sessions  laws  passed  from  1809  to  1876  there  were  no 
references  to  taxes  or  taxation,  except  to  municipal  and 
local  laws.148  A  general  revision  of  the  statutes  of  Ohio 
was  made  in  1878,  and  all  the  general  statutes  on  the  sub- 
ject of  taxation  were  consolidated  and  revised.  They 
formed  Title  XIII,  chapters  1-8  of  the  revised  statutes  of 
1880. 

THE   ACT   OF   1878.149 

There  was  little  that  was  new  in  the  act  of  1878,  and 
no  changes  in  the  essential  principles  of  taxation  that  had 
been  in  practice  since  1846.  Chapter  1  dealt  with  defini- 
tions and  property  to  be  taxed  in  almost  the  same  language 
as  previous  laws.150  Chapter  2  covered  the  listing  of  per- 
sonal property  and  was  the  longest.  Foreign  insurance 
companies  were  added  to  the  list  of  corporations  required 
to  make  returns  of  their  taxable  property  (sec.  7-13).  A 
more  elaborate  and  careful  procedure  had  been  developed 

""Act  of  March  2.,  1871.     O.  L.  p.  33;  2  Sayler  1644. 

mGov.  Mess.,  Jan.  5,  1847.  Exec.  Doc.,  1873,  II,  218.  This  was  done 
by  act  of  May  n,  1878,  ch.  5.  "It  has  been  this  enormous  weight  of 
local  taxation  that  has  pressed  so  heavily  on  the  people."  Aud.  rep.  Exec. 
Doc..  1870,  I.  317. 

148O.  L.,  1876,  App.,  p.  42  et  scq.  In  the  index  of  laws  of  1872  the 
words  did  not  occur  at  all. 

"'Act  of  May  ii,  1878.     O.  L.,  1878.  pp.  436-507. 

1MSoldiers'  monuments  were  added  to  the  list  of  exempt  property. 
The  amount  of  personal  property  exempted  was  raised  from  $50  to  $100. 


238  FINANCIAL  HISTORY  OP  OHIO  [238 

for  banks:  incorporated  banks  were  to  be  taxed  on  their 
shares  in  the  city  where  the  bank  was  located,  their  real 
estate  being  taxed  where  situated  (sec.  29-36) ;  unincor- 
porated banks  and  bankers  were  required  to  make  out  a 
list  of  the  average  amount  of  their  (1)  notes  discounted, 
(2)  accounts  receivable,  (3)  cash,  (4)  stocks,  bonds,  etc., 
(5)  real  estate,  (6)  deposits,  (7)  accounts  payable,  exclu- 
sive of  deposits,  (8)  capital  paid  in.  The  auditor  was  to 
subtract  items  6-8  from  items  1-5,  and  they  were  to  T)e 
taxed  on  the  balance  (sec.  25-28) .  Railroads  were  to  be  ap- 
praised and  assessed  by  the  county  auditors  (sec.  37-43). 
Foreign  express  and  telegraph  companies  were  required  to 
list  through  their  agents  the  annual  amount  of  their  gross 
receipts;  but  express  companies  were  permitted  to  deduct 
from  this  the  amount  paid  railroads  for  transportation 
(sec.  44-47).  Chapter  3  contained  the  legislation  concern- 
ing the  assessing  of  real  estate. 

Seven  boards  of  equalization  were  now  provided  for: 
(ch.  4)  the  annual  county  board,  consisting  of  the  county 
commissioners  and  auditor,  to  equalize  individual 
assessments ;  the  annual .  city  board,  with  similar 
duties,  consisting  of  the  county  auditor  and  six  citizens 
of  the  city  appointed  by  the  council;  the  annual  state 
board  for  banks,  consisting  of  the  state  auditor,  treas- 
urer, and  attorney  general,  to  equalize  the  value  of 
the  shares  of  incorporated  banks;  the  annual  state  board 
for  railroads,  consisting  of  the  same  officials,  with  similar 
duties  for  the  railroads  of  the  state;  the  decennial  county 
board,  consisting  of  the  auditor,  surveyor,  and  county  com- 
missioners, to  equalize  the  real  property  in  the  county ;  the 
decennial  city  board,  consisting  of  the  county  auditor  and 
six  citizens  appointed  by  the  council,  with  similar  duties 
for  the  city;  and  the  decennial  state  board,  consisting  of 
as  many  members  as  the  state  senate  and  elected  from  the 
senatorial  districts,  with  similar  duties  for  the  state. 
These  last  three  were  to  meet  in  1880  and  every  tenth  year 
thereafter.  In  the  multiplicity  of  these  boards  is  eloquent 
testimony  to  the  growing  complexity  of  the  tax  system,  and 


239]  THE  GENERAL  PROPERTY  TAX  239 

of  the  need  of  different  treatment  of  different  forms  of 
property,  in  spite  of  the  constitutional  requirement  of  uni- 
formity. 

The  levying  of  taxes  was  treated  in  chapter  5.  The 
rates  for  state  taxes  were  to  be  fixed  by  the  legislature, 
those  for  county  taxes  by  the  county  commissioners,  and 
those  for  townships  by  the  township  trustees.  County  and 
township  rates  were  both  limited  according  to  the  amount 
of  taxable  property,  decreasing  as  the  amount  increased. 
But  in  the  case  of  townships  the  trustees  were  empowered 
to  levy  an  additional  road  tax,  payable  in  labor.  Large 
county  improvements  must  be  submitted  to  the  voters  of 
the  county  before  being  made.  One  section  (sec.  12-13) 
was  reminiscent  of  the  early  days  of  internal  improvements 
and  of  the  reckless  subsidies  and  loans  of  credit  that  were 
made  at  that  time.  This  authorized  any  county,  city,  or 
township  that  had  subscribed  to  the  stock  of  any  railroad 
company  and  had  issued  its  bonds,  within  five  years  before 
the  maturity  of  those  bonds,  if  the  stock  of  the  railroad 
company  should  be  less  than  75,  to  levy  a  tax  of  not  over 
one  mill  to  balance  the  discount  on  the  stock ;  the  proceeds 
of  such  tax  to  constitute  a  sinking  fund  for  the  payment  of 
the  bonds. 

In  the  subject  of  collection  of  taxes  (ch.  6)  there  was 
one  pregnant  section  (sec.  18),  which  was  destined  to  open 
the  way  for  the  development  of  a  unique  method  of  collect- 
ing back  taxes,  the  so-called  tax  inquisitor  system.  This 
provided  that  a  duplicate  of  the  unpaid  personal  property 
tax  was  to  be  given  by  the  county  auditor  to  the  county 
treasurer,  after  the  semi-annual  settlement  in  August;  the 
treasurer  should  then  collect  the  delinquent  taxes  and  be 
allowed  five  per  cent,  on  all  he  collected.  From  this  to 
the  employment  of  unofficial  assistants  to  aid  him  and  to 
ferret  out  new  and  undeclared  personalty  was  but  a  step, 
which  was  taken  by  the  act  of  April  14,  1880.151  If  false 
returns  were  made  or  evasions  attempted,  the  county 

1M/7  O.  L.  205. 


240  FINANCIAL  HISTORY  OF  OHIO  [240 

auditor  was  authorized  to  add  50  per  cent,  penalty  and  to 
go  back  four  years  in  the  collection  of  the  evaded  taxes; 
"but  as  to  former  years,  no  penalty  shall  be  added,  and 
only  simple  taxes  shall  be  claimed."  Chapters  7  and  8 
dealt  with  the  subjects  of  delinquent  and  forfeited  lands, 
their  sale  and  redemption,  but  made  no  changes  in  former 
procedure. 

THE  OHIO  TAX  INQUISITOR  LAW.152 

The  act  of  1880,  just  referred  to,  had  legalized  the 
employment  by  county  commissioners  of  private  individuals 
to  detect  property  improperly  omitted  from  the  tax  dupli- 
cates. The  county  commissioners  of  Hamilton  county  had 
been  employing  men  for  this  purpose  before  1880,  paying 
them  a  commission  on  the  agnount  of  taxes  collected 
through  information  furnished  by  them,  but  the  commis- 
sions thus  paid  had  been  borne  wholly  by  the  county  though 
the  state  shared  in  the  increased  taxes.  By  this  law  the 
state  was  made  to  bear  part  of  the  expense.153  In  1885 
authority  was  given  to  the  counties  of  Hamilton,  Cuyahoga, 
Lucas,  and  Franklin,  containing  the  four  largest  cities 
in  the  state  (Cincinnati,  Cleveland,  Toledo,  and  Colum- 
bus), to  employ  tax  inquisitors  and  to  compel  the  state  to 
share  in  the  expense.154  Finally,  in  1888,  the  power  to 
employ  tax  inquisitors  was  extended  to  all  the  counties 
in  the  state.155  The  compensation  of  such  persons  was 
limited  to  20  per  cent,  of  the  amount  of  taxes  actually  paid 
in  as  a  result  of  their  researches.  Tax  inquisitors  were 
bonded  at  f  1000,  and  provision  was  made  for  the  punish- 
ment of  assessors  or  auditors  who  wilfully  omitted  prop- 
erty from  the  tax  duplicate:  they  were  held  guilty  of  a 

133A  good  account  of  the  workings  of  this  system  has  been  given  by 
T.  N.  Carver,  in  Economic  Studies  of  the  American  Economic  Association 
(1898),  vol.  Ill,  No.  3;  also  by  E.  A.  Angell,  in  Yale  Review,  vol.  5,  p.  350. 

^Constitutionality  of  act  was  upheld  by  Supreme  Court  in  State 
ex.  rel.  v.  Coppellar.  39  O.  S.  214. 

^Act  of  April  23,  1885.  82  O.  L.  152.  Constitutionality  upheld  in 
State  v.  Crites,  48  O.  S.  142. 

•"Act  of  April  10,  1888.    85  O.  L.,  p.  i/o. 


241]  THE  GENERAL  PROPERTY  TAX  241 

misdemeanor  and  fined  not  exceeding  |200  or  imprisoned 
in  county  jail  not  exceeding  sixty  days. 

Under  these  various  laws  there  grew  up  in  Ohio  a 
unique  system  of  ferreting  out  omitted  property  by  the 
employment  of  private  detectives.  A  further  law  provided 
that  the  county  auditor  might  go  back  five  years  in  correct- 
ing false  returns  and  add  a  50  per  cent,  penalty  for  each 
year  in  which  the  taxes  were  evaded.150  Other  legislation 
had  given  the  auditor  almost  drastic  power  to  investigate, 
to  summon  witnesses,  administer  oaths,  take  testimony, 
etc.,  which  taken  in  connection  with  the  inquisitor  features 
would  seem  to  have  made  the  concealment  of  personal 
property  almost  impossible.  In  actual  practice,  however, 
the  system  did  not  work  out  as  well  as  was  anticipated.  As 
his  position  was  a  political  one  the  auditor  often  showed 
himself  unwilling  to  co-operate  with  the  tax  inquisitors  in 
placing  the  full  amount  of  the  omitted  property  on  the 
duplicate.157 

The  results  hardly  seemed  to  justify  the  system,  for 
the  increase  in  the  assessed  valuation  of  personal  property 
was  slight  after  1880,  and  in  those  forms  of  property  in 
which  the  services  of  the  inquisitors  would  be  most  valu- 
able, namely  credits  and  intangible  personalty,  there  was 
either  no  increase  or  a  slight  decline.  The  amount  of 
omitted  property  placed  on  the  tax  duplicate  by  the  tax 
inquisitors  ranged  from  f  12,000,000  in  1896  to  $99,000,000 
in  1902.158  The  system  was  never  adopted  by  all  the 
eighty-eight  counties  in  the  state,  the  largest  number 
making  use  of  it  at  one  time  being  fifty-five  in  1893 ;  since 
that  date  it  has  been  less  generally  used.  In  1904  the 
system  was  abolished. 

The  following  account  will  serve  to  show  fairly 
clearly  the  workings  of  the  system.159 

1MAct  of  April  14,   1886.     83  O.  L.  82.     Held  to  be  constitutional  in 
Sturges  v.  Carter,  114  U.  S.  Sup.  Ct.  512. 

157See  a  notable  case  cited  by  Carver,  op.  cit.,  p.  184. 
''"'"Statistics  prior  to  1893  are  not  available. 
^Cleveland  Plain  Dealer,  Dec.  17,  1903. 


242  FINANCIAL  HISTORY  OF  OHIO  [242 

Tax  Inquisitor  Morganthaler  and  his  local  representatives  have 
stirred  up  a  veritable  tempest  among  investors  by  securing  information  of 
local  investments  from  the  stock  books  of  a  number  of  the  big  corpora- 
tions. From  these  stock  books  Morganthaler  has  learned  of  large  blocks 
of  stock  held  in  the  names  of  well  known  people  and  not  returned  for 
taxation.  Some  of  the  blocks  of  stock  he  found  are  very  large  and  had 
been  held  by  the  owners  for  several  years. 

Morganthaler  is  following  up  his  clews  with  great  speed  and  is 
presenting  to  the  holders  of  the  stock  bills  for  delinquent  taxes  and 
penalties  for  forgetting  to  make  proper  returns.  One  wholesale  merchant 
has  settled  with  the  inquisitor  for  $3,000  for  a  large  block  of  United  States 
Steel,  preferred,  which  he  had  held  since  the  company  was  organized. 
Other  local  financiers  have  had  calls  from  the  tax  man  and  have  negotia- 
tions for  settlement  under  way. 

The  feature  of  most  interest  to  the  local  holders  who  are  receiving 
calls  from  the  tax  man  is  the  manner  in  which  he  gets  the  information 
from  the  stock  books  of  the  corporation.  Morganthaler  is  very  specific 
in  the  bills  he  presents  to  the  forgetful  men.  He  details  the  date  of 
purchase,  number  of  shares,  length  of  time  owned,  if  it  has  been  sold, 
and  all  other  information  to  show  that  he  has  done  his  work  with  fidelity. 
When  he  presents  the  bill  with  the  detailed  informaiton  to  the  owners 
there  is  nothing  to  be  done  but  talk  settlement  and  that  is  what  the  men 
are  doing. 

A  few  months  ago  Morganthaler  secured  the  records  from  the  stock 
book  of  the  Detroit  United  Railway  and  caught  several  Clevelanders  who 
owned  that  stock  and  had  forgotten  to  return  it  for  taxation.  That  stock 
was  widely  held  in  the  city  and  Morganthaler  located  every  one  of  the 
forgetful  owners  and  the  back  taxes  were  compromised  quietly. 

There  is  a  rumor  in  circulation  that  Morganthaler  has  much  other 
information  of  similar  nature  and  that  many  other  holders  of  this  widely 
scattered  stock  will  be  called  upon  in  Cleveland  and  other  Ohio  cities  and 
settlement  demanded.  It  is  difficult  to  discuss  the  facts  when  the  tax 
man  comes  armed  with  dates  and  the  number  of  shares  and  settlements 
are  usually  made  privately.  It  is  understood  Morganthaler  is  bending  the 
greater  part  of  his  efforts  along  this  line  and  has  uncovered  a  great 
amount  of  stock  in  various  corporations  held  by  residents  of  Ohio  that 
escaped  the  memory  of  the  individuals  when  they  made  their  tax  returns. 

THE   TAX   COMMISSION    OF   1893. 

After  1878  there  were  practically  no  new  tax  laws 
passed  for  about  fifteen  years;  the  codification  of  the 
statutes  in  1878160  had  added  little.  In  the  meantime,  how- 

140Act  of  May  11,  1878. 


243]  THE  GENERAL  PROPERTY  TAX  243 

ever,  corporations  were  developing,  especially  in  the  fields 
of  transportation  and  transmission  companies,  and  in- 
equalities in  the  general  property  tax  were  becoming~mdre~ 
marked  and  causing"  greaTer  dissatisfaction: — Governor 
Foraker  in  1886  complained  that  in  the  counties  of  Lucas 
and  Cuyahoga  (in  which  were  situated  the  cities  of  Toledo 
and  Cleveland)  it  had  become  habitual  for  the  assessors, 
county  auditors,  and  boards  of  equalization  to  value  per- 
sonalty for  taxation  at  60  per  cent,  of  its  true  value,  while 
in  other  parts  of  the  state  the  appraisement  was  much 
higher.161  Two  years  later  he  again  referred  to  the  gross 
inequalities  that  existed  in  the  valuation  of  property  for 
taxation  :162  "personal  property  to  the  extent  of  hundreds 
of  millions  of  dollars  in  value  escapes  taxation  entirely. 
.  .  .  There  should  be  no  delay  in  providing  for  the 
taxation  of  foreign  corporations  on  their  gross  receipts, 
or  in  some  equivalent  way,  the  better  listing  of  mortgages 
and  other  securities,  and  the  more  equitable  taxing  of  A 
private  banks." 

As  a  result  of  the  dissatisfaction  with  the  existing 
system,  and  especially  with  the  constitutional  requirement 
of  uniformity  in  the  taxation  of  all  forms  of  property,  and 
the  insufficiency  of  income  for  state  needs,  the  legislature 
in  1893  took  two  decisive  steps  to  improve  conditions.  By 
joint  resolution  they  drew  up  a  rather  ambiguous  amend- 
ment to  Article  XII,  section  2,  of  the  constitution,  to  be 
submitted  to  the  people  at  the  next  election.103  This  pro- 
vided for  "taxing  rights,  privileges,  franchises,  and  other 
such  matters  as  the  general  assembly  may  direct."  This 
proposed  amendment  was  rejected  at  the  polls  by  the  peo- 
ple, perhaps  not  undeservedly.  The  other  important  step 
toward  reform  lay  in  the  appointment  of  a  bipartisan  com- 
mittee of  four  to  investigate  the  subject  of  taxation.104  A 
statutory  commission  had  been  appointed  for  this  purpose 

""Gov.  Mess.    Exec.  Doc.,  1885,  I,  419. 

"2Gov.  Mess.    Exec.  Doc.,  1887,  I,  xi. 

""Joint  resolution,  April  22,  1893.     O.  L.,  1893,  p.  384. 

1MJoint  resolution,  April  24,   1893.     O.  L.,  1893,  P-  3^5- 


244  FINANCIAL  HISTORY  OF  OHIO  [244 

in  1883,  and  an  appropriation  of  $1630  had  been  made 
for  their  expenses,165  but  they  had  confined  themselves  to 
recommending  some  slight  changes  in  the  administration 
of  the  general  property  tax.  The  tax  commission  of  1893, 
however,  went  energetically  to  work,  and  made  their  report 
on  December  23  of  the  same  year. 

The  first  topic  discussed  in  this  report  was  the  power 
of  the  general  assembly  over  tl^  subject  of  taxation,  under 
the  existing  constitution,  and  the  conclusion  reached  was 
that  while  that  instrument  prohibited  the  taxation  of  per- 
sons, it  left  the  taxation  of  business  wholly  to  the  discre- 
tion of  the  legislature ;  as  to  property,  it  must  be  taxed  by 
uniform  rule  according  to  its  true  value  in  money.  The 
existing  methods  of  taxing  property  and  business  in  Ohio 
were  then  examined  and  the  conclusion  reached  that  "in 
the  main  the  Ohio  system  of  taxation  will  compare  favor- 
ably with  those  of  other  states."  The  third  and  most  im- 
portant problem,  whose  consideration  made  up  the  bulk  of 
the  report,  was  then  stated  as  follows : 

How  shall  property  now  being  excessively  taxed  be  relieved,  and  property 
now  escaping  taxation  be  charged,  so  as  to  equalize  the  burdens  of  taxa- 
tion, and  increase  the  revenues  of  the  state? 

In  answer  to  the  first  part  of  this  question  the  com- 
mission established  the  fact  that  "all  but  a  mere  bagatelle" 
of  the  intangible  property  was  escaping  taxation;  that 
real  estate  was  bearing  a  disproportionate  share  of  taxa- 
tion, paying  from  14  to  25  per  cent,  of  its  gross  rentals, 
while  railroads  paid  only  5  to  12  per  cent,  of  their  net 
earnings.  Banks  were  contributing  their  fair  share.  But 
intangible  property  as  a  whole  paid  less  than  10  per  cent, 
of  the  taxes  of  the  state,  while  the  tax  inquisitor  law  pro- 
duced not  over  2  per  cent,  of  the  taxes  collected;  they 
recommended  the  abolition  of  the  latter  system. 

As  to  remedies  the  commission  recommended  a  change 
in  the  administration  of  the  general  property  tax,  by  con- 
centrating the  duties  of  the  various  state  boards  of  equali- 
zation in  one  single  state  board  of  assessment  and  equaliza- 

1<BAct  of  April  16,  1883. 


245]  THE  GENERAL  PROPERTY  TAX  245 

tion,  and  of  the  various  local  boards  in  one  county  board 
of  assessment  and  equalization,  and  by  providing  for  quin- 
quennial instead  of  decennial  revaluations  of  real  estate. 
They  also  recommended 

the  equalization  of  taxation  and  increase  of  revenue,  by  laying  taxes  on 
business,  with  an  especial  view  to  reaching  intangible  property,  and  cor- 
porations and  enterprises,  whose  ability  to  contribute  to  the  expenses  of 
the  government  cannot  be  justly  measured  by  a  tax  upon  their  property; 
and  to  this  end,  the  following  taxes  are  suggested:  (a)  an  annual 
franchise  tax  on  the  corporations  and  enterprises  indicated,  including  rail- 
roads; (b)  a  privilege  tax  on  transfers  of  property  by  deed,  mortgage  or 
will,  and  upon  appeals,  writs  of  error,  etc.;  (c)  an  extension  of  the 
collateral  inheritance  tax  to  classes  exempted  by  the  present  law,  and  an 
increase  of  the  tax;  (d)  an  extension  of  the  corporate  organization  tax 
to  foreign  corporations  doing  business  in  this  state.108 

In  conclusion  they  urged  rigid  economy  in  public  expendi- 
ture. 

As  a  result  of  these  recommendations  and  for  the 
purpose  of  obtaining  larger  revenues,  the  legislature  Im- 
posed a  tax  on  the  traffic  in  cigarettes,  and  increased  the 
share  of  the  state  in  the  liquor  tax.  They  also  extended 
the  inheritance  tax  to  direct  inheritances,  and  imposed  a 
franchise  tax  on  domestic  and  foreign  corporations,  and  ex- 
cise taxes  on  express,  foreign  insurance,  and  sleeping  car 
companies.  A  little  later,  for  purposes  of  regulation  rather 
than  revenue  they  established  boards  of  pharmacy  and  med- 
ical registration  and  examination,  a  fish  commission,  an  ex- 
aminer of  stationary  engines,  etc.,  for  the  support  of  which 
fees  were  exacted.  The  situation  in  1895  was  summed  up 
by  Governor  McKinley  in  his  annual  message,  from  which 
we  may  quote  at  considerable  length  :1C7 

The  state's  revenues  are  inadequate  to  the  needs  of  the  state,  and 
some  legislation  should  be  had  which  will  insure  a  permanent  increase  of 
these  revenues.  This  question  is  brought  up  at  each  recurring  session  of 
the  General  Assembly,  and  has  long  been  a  matter  of  much  vexation.  .  .  . 
While  full  relief  has  not  yet  been  found,  yet  some  advance  has  been 
made  in  the  direction  of  larger  revenues,  without  adding  any  further 
burdens  to  real  or  other  property  already  bearing  its  full  share  of  taxa- 
tion. Xew  subjects  of  taxation,  which  have  heretofore  escaped  their  just 

1MRep.,  p.   70. 

1("Gov.  Mess.    Exec.  Doc.,  1895,  I,  5-6. 


246  FINANCIAL  HISTORY  OF  OHIO  [246 

share  of  the  public  burdens,  are  slowly,  but  with  certainty,  being  placed 
upon  the  tax  duplicate. 

The  Massie  law  of  February  12,  1889,  levies  a  franchise  tax  of  1/i» 
per  cent,  upon  the  capital  stock  of  Ohio  companies,  for  the  privilege  of 
becoming  incorporated  or  consolidated  under  the  laws  of  Ohio,  the  fee 
to  be  paid  to  the  Secretary  of  State.  It  yields  about  $100,000  yearly. 

The  Hard  law  of  May  16,  1894,  requires  every  foreign  corporation 
having  a  plant  in  Ohio  to  pay  a  tax  of  Vio  per  cent,  upon  the  proportion 
of  its  capital  stock  represented  by  property  in  this  state.  The  object  was 
to  place  foreign  corporations  on  the  same  footing  as  domestic  corpora- 
tions. It  yields  about  $20,000  yearly.  The  Carpenter  law  of  April  25,  1893, 
requires  all  foreign  corporations  to  file  a  statement  with  the  Secretary  of 
State,  designating  a  person  upon  whom  service  can  be  made,  and  to  pay 
a  fee.  It  yields  about  $5,000  yearly. 

Franchise  tax  on  foreign  insurance  companies.  By  an  amendment 
of  April,  1893,  foreign  insurance  compaines  were  required  to  pay  a  tax 
to  counties  only  upon  their  net  premium  receipts,  while  the  difference 
between  the  amount  thus  paid  into  the  counties,  and  2^/2  per  cent,  on 
their  gross  premium  receipts,  was  made  payable  to  the  superintendent  of 
insurance  for  the  privilege  of  doing  business  in  Ohio.  It  was  further 
enforced  by  the  amendment  of  March  27,  1894.  It  yields  about  $40,000 
yearly. 

Excise  tax  on  express  companies  for  the  privilege  of  doing  business 
in  Ohio  of  2  per  cent,  on  gross  receipts  from  Ohio  business.  These  are 
to  be  ascertained  by  a  state  board,  consisting  of  the  auditor,  treasurer, 
and  attorney  general. 

The  Griffin  law  of  May  24,  1894,  levying  an  excise  tax  of  r  per  cent, 
on  the  value  of  that  proportion  of  the  capital  stock  of  sleeping  car  com- 
panies represented  by  cars  owned  and  used  in  Ohio,  ascertained  by  a  state 
board,  consisting  of  the  auditor,  treasurer,  and  attorney  general.  This 
was  the  first  tax  on  sleeping  car  companies  as  such  in  Ohio. 

The  inheritance  tax  law  of  April  20,  1894,  levying  a  direct  inherit- 
ance tax,  has  been  held  invalid  by  the  Supreme  Court,  because  of  the 
inequality  of  its  graded  features  and  large  exemption.  At  the  same  time 
the  power  of  the  state  to  raise  revenue  by  taxing  successions  has  been 
maintained. 

ABOLITION     OF     THE     GENERAL     PROPERTY     TAX     FOR     STATE 

PURPOSES.168 

For  some  years  no  further  changes  were  made  in  the 
tax  laws,  as  the  new  sources  of  revenue  thus  opened  up 

16*Much  of  what  follows  has  been  published  in  the  American  Econom- 
ic Review,  Sept.,  1911,  under  the  title  "Recent  Tax  Reforms  in  Ohio." 
Thanks  are  due  Prof.  D.  R.  Dewey,  the  editor,  for  permission  to  reprint. 


247]  THE  GENERAL  PROPERTY  TAX  247 

grew  steadily  more  lucrative.  In  1901,  as  the  result  of  the 
decennial  revaluation  of  real  estate,  there  was  added  to  the 
total  valuation  of  real  and  personal  property  upon  the 
grand  duplicate  the  sum  of  $135,000,000.  The  total  amount 
of  money  paid  into  the  state  treasury  for  the  year  ending 
November  15,  1901,  was  about  $8,100,000;  of  this  amount 
$5,400,000,  or  two-thirds,  was  raised  by  levies  upon  real 
and  personal  property,  and  the  remaining  third  came  from 
other  sources  of  revenue.  The  relief  to  the  agricultural 
interests  of  the  state  was  so  marked  that  the  extension  of 
this  principle  was  earnestly  advocated  by  Governor  Nash. 
He  urged  that  the  complete  segregation  of  state  and  local 
taxation  be  sought,  and  that  the  revenues  for  state  pur- 
poses be  secured  from  corporation,  inheritance,  and  excise 
taxes,  leaving  to  the  local  governments  the  general  prop- 
erty tax. 

The  advantages  of  such  a  system  [he  said1"]  are  many.  The  tangible 
property  will  be  relieved  of  a  portion  of  the  burden  which  it  now  bears. 
There  will  then  be  no  occasion  for  the  state  board  of  equalization.  No 
injustice  will  arise  because  the  property  in  one  county  is  valued  more 
highly  for  the  purpose  of  taxation  than  the  property  in  another.  The 
injustice  arising  from  such  erroneous  valuation  comes  only  when  state 
taxes  are  to  be  paid.  Then  taxes  upon  property  will  be  levied  by  the 
county,  municipality,  and  township  officers.  Taxation  will  become  local, 
and  if  the  officers  responsible  for  it  are  derelict  in  the  discharge  of  their 
duties,  they  live  among  the  people  whom  they  wrong  and  who  can  easily 
get  rid  of  them  and  elect  other  officers  who  will  wisely  perform  these 
duties. 

By  the  act  of  April  29,  1902,  the  general  assembly 
partially  followed  this  advice,  and  omitted  to  make  any 
levy  for  the  general  revenue  fund  upon  the  real  and  per- 
sonal property  returned  for  taxation.  The  levy  for  com- 
mon school  purposes  was  reduced  from  1  mill  to  .95  mill; 
and  for  sinking  fund  purposes  from  .30  to  .18  mills.170  In 
his  next  message  Governor  Nash  voiced  the  belief  that  the 
legislature  ought  "eventually  to  wipe  out  this  tax  alto- 


Mess.,   1902,  p.  n. 
"°The  old  levies,  together  with  one  of  1.4  mills  for  general  revenue 
purposes,  had  been  imposed  by  the  law  of  April  18,  1892,  which  was  now 
repealed. 


248  FINANCIAL  HISTORY  OF  OHIO  [248 

gether."  Governor  Pattison  in  1906  advocated  the  same 
policy : 

The  law  as  far  as  possible,  should  provide  that  the  necessary  revenue  for 
the  expenses  of  the  state  shall  be  raised  in  some  manner  without  calling 
upon  the  respective  counties  for  any  portion  thereof.171 

The  loss  of  revenues  from  the  general  property  tax 
was  made  good  by  the  passage  of  the  "Cole  law",  which 
raised  the  excise  tax  on  public  service  corporations  from 
%  to  1  per  cent,  of  their  gross  earnings,  and  the  "Willis 
law",  which  imposed  a  tax  of  Vio  °f  1  Per  cent,  on  domestic 
and  foreign  corporations,  other  than  those  operating  a 
public  service.  The  transition  was  moreover  made  easy 
by  the  existence  of  a  large  balance  in  the  general  revenue 
fund,  amounting  on  November  15,  1902,  to  almost  $3,000,- 
000,  of  which  $459,000  was  due  to  the  payment  by  the 
federal  government  of  money  expended  by  the  state  during 
the  Civil  War. 

The  problem  of  reforming  the  existing  system  of  taxa- 
tion was  by  no  means  settled,  however,  and  continued  to 
be  a  topic  of  discussion  in  legislative  and  administrative 
circles,  as  well  as  among  the  people  at  large.  In  Novem- 
ber, 1905,  an  amendment  was  passed  to  Article  XII,  sec- 
tion 2,  of  the  constitution,  exempting  from  taxation  Ohio 
state,  county,  township,  municipal,  and  school  bonds.  As 
the  principle  of  stoppage  at  the  source  had  never  been  ap- 
plied to  the  taxation  of  any  of  these  bonds,  only  a  part  of 
them  had  been  subjected  to  taxation,  but  the  rate  of  in- 
terest on  all  had  to  be  high  enough  to  cover  the  risk  of 
their  being  taxed.  By  exempting  them  definitely,  the  rate 
of  interest  which  it  was  necessary  for  the  local  govern- 
ment to  pay  upon  money  borrowed  by  them  was  reduced 
by  nearly  the  average  rate  of  taxation  formerly  levied  upon 
the  bonds. 

THE  TAX  COMMISSION  OF  1900. 

Dissatisfaction  with  the  tax  system  next  found  expres- 
sion in  the  action  of  various  business  and  professional  asso- 

1T1Gov.  Mess.,  1906,  p.  13. 


249]  THE  GENERAL  PROPERTY  TAX  249 

ciations,  and  in  other  less  formal  expressions  of  opinion, 
which  demanded  reform.  Accordingly  the  governor,  in 
September,  1906,  appointed  a  commission  of  five  men  "to 
investigate  the  tax  laws  of  this  state  and  to  make  recom- 
mendations for  their  improvement."  They  submitted  their 
report  on  January  10,  1908.  After  outlining  the  existing 
tax  system  of  Ohio  under  the  heads  of  the  general  property 
tax  and  special  excises  and.  privilege  taxes,  the  report 
enumerated  the  evils  of  the  system.  These  were  classified 
under  five  heads:  inequalities  between  the  owners  of  real 
and  personal  property,  among  the  owners  of  real  estate, 
among  the  owners  of  personal  property,  between  owners  of 
real  and  personal  property  and  owners  of  corporate  prop- 
erty, and  finally  inequalities  among  corporations. 

The  most  important  feature  of  the  report  was  its 
recommendations,  which  were  five  in  number.  First  and 
foremost  came  a  proposed  amendment  of  the  constitution, 
giving  the  legislature  a  freer  hand  to  deal  with  such  sub- 
jects as  franchises,  stocks^  bonds,  cash,  mortgages,  and 
other  intangible  property,  and  abolishing  the  rule  of  uni- 
formity, which  had  proved  such  a  stumbling  block  in  the 
way  of  tax  reform.  The  proposed  amendment  simply  gave 
to  the  general  assembly,  in  general  terms, 

power  to  establish  and  maintain  an  equitable  system  for  raising  state 
and  local  revenue.  It  may  classify  the  subjects  of  taxation  so  far  as  their 
differences  justify  the  same  in  order  to  secure  a  just  return  from  each. 

The  legislature  was  to  be  authorized  to  classify  property 
for  purposes  of  taxation,  but  was  not  required  to  do  so. 

The  other  recommendations  of  the  commission  were 
as  follows:172  (2)  the  establishment  of  a  state  tax  board  of 
three  members,  to  be  appointed  by  the  governor,  to  admin- 
ister all  laws  for  the  collection  of  state  revenues  and  to 
make  such  recommendations  upon  the  general  subject  of 
taxation  as  investigation  and  experience  may  from  time 
to  time  suggest;  (3)  a  more  frequent  appraisement  of  real 
estate;  (4)  the  abolishment  of  the  present  state  levy  upon 
real  and  personal  property  and  the  complete  separation  of 

mRep.,  pp.  39-44. 


250  FINANCIAL  HISTORY  OF  OHIO  [250 

state  and  local  revenues  at  the  earliest  practicable  date; 
(5)  that  authority  be  given  to  local  communities  to  secure 
publicity  in  taxation  in  such  manner  as  they  shall  deem 
best. 

RECENT  TAX  REFORMS. 

The  recommendations  of  the  commission  were  favor- 
ably received,  and  within  two  years  four  out  of  the  five 
suggestions  were  practically  adopted.  .  We  may  take  these 
up  in  order.  It  had  been  found  impossible,  after  repeated 
trials,  to  secure  an  amendment  to  the  constitution  permit- 
ting the  classification  of  property  for  purposes  of  taxation, 
even  the  one  proposed  by  the  commission  being  rejected 
at  the  polls,  so  it  was  suggested  that  a  constitutional  con- 
vention be  called  to  overhaul  the  instrument  as  a  whole. 
Each  of  the  political  parties  ratified  this  suggestion,  and 
their  action  found  expression  on  the  official  ballot,  so  that 
a  straight  party  vote  would  be  a  vote  in  favor  of  calling  a 
convention.173  Probably  as  a  result  of  this  fact,  the  pop- 
ular vote  on  November  8,  1910,  was  overwhelmingly  in 
favor  of  calling  the  convention,  being  693,263  for  and 
67,718  against  the  proposition.  After  this  vote  doubt  arose 
as  to  whether  the  convention  should  be  held  legally  in  1911 
or  1912,  the  corporate  interests,  which  feared  that  their 
tax  burdens  might  be  increased  under  a  new  constitution, 
contending  for  the  latter  date.  When  it  meets  there  is 
little  doubt  that  the  provisions  of  the  constitution  relating 
to  taxation  and  finance  will  be  carefully  revised,  and  that 
the  rule  of  uniformity  in  taxation  will  be  changed. 

The  second  recommendation  of  the  commission  to  be 
acted  upon  was  that  of  the  more  frequent  appraisement  of 
real  estate.  Between  1825,  when  the  system  of  the  general 
property  tax  was  first  introduced  into  Ohio,  and  1859,  the 
valuations  of  real  property  had  been  made  roughly  about 
every  six  years ;  from  the  latter  date  down  to  1910  valua- 
tions had  been  decennial.174  This  system  was  adopted  when 

""Act  of  April  26,  1910.     101  O.  L.  169.     Popular  vote  on  convention 
was  provided  for  by  act  of  March  16,  1909.     100  O.  L.  18. 
"4See  above,  p.  205,  note  75. 


251]  THE  GENERAL  PROPERTY  TAX  251 

the  real  estate  of  Ohio  consisted  almost  wholly  of  farm 
lands,  and  had  been  retained  by  this  state  after  it  was 
given  up  by  every  other  state  in  the  Union.  Gross  injustice 
was  often  done  by  the  rapid  changes  in  the  value  of  real 
estate,  which  local  boards  were  unable  to  correct  during 
the  interval.175  As  a  compromise  between  the  expense  of 
annual  appraisements  and  the  injustice  of  decennial  ones, 
the  commission  recommended  quadrennial  appraisements. 
By  act  of  March  12, 1909,17G  this  was  provided  for,  to  begin 
in  1910  and  continue  every  fourth  year  thereafter. 

The  most  important  and  far-reaching  legislation,  how- 
ever, consisted  in  the  appointment  of  a  permanent  tax 
commission.177  By  this  act  Ohio  took  rank  among  the 
progressive  states  in  matters  relating  to  taxation,  and 
opened  the  way  for  further  reforms.  The  commission  con- 
sists of  three  members,  appointed  by  the  governor  for  a 
term  of  three  years,  at  a  salary  of  $5,000  per  annum.  Their 
most  important  function,  for  the  present  at  least,  is  to  con- 
sist in  the  assessment  of  railroads,  express,  telegraph,  and 
telephone  companies,  sleeping  car,  pipe  line,  and  equip- 
ment companies,  and  other  public  utilities,  which  had  pre- 
viously been  assessed  by  a  number  of  special  boards.  For 
instance,  railroads  had  been  assessed  by  the  county  audit- 
ors, and  the  others  by  various  state  boards;  the  taxes  on 
public  service  corporations  had  been  collected  by  the 
auditor ;  the  excise  tax  on  other  corporations  had  been  col- 
lected by  the  secretary  of  state,  and  other  taxes  had  been 
paid  to  the  state  treasurer.  All  the  machinery  for  the 
assessment  of  these  various  taxes  was  now  concentrated 

"5By  the  decision  of  the  supreme  court  of  Ohio  (Davies,  Auditor,  v. 
The  National  Land  and  Investment  Co.,  76  O.  S.  407)  it  was  held  that 
after  the  completion  of  a  decennial  appraisement  of  real  estate,  and  its 
equalization,  it  was  not  competent  for  a  local  board  to  re-value  or  increase 
the  taxable  appraisement  of  real  estate,  or  even  to  correct  gross  inequalities 
caused  by  the  growth  of  a  city.  The  case  thus  decided  involved  property 
in  Toledo,  whose  value  had  increased  millions  of  dollars. 

1T'ioo  O.  L.  Si.    Amended  by  act  of  Jan.  31,  1910.    101  O.  L.  7. 

'"Act  of  May  10,  1910.     101  O.  L.  399. 


252  FINANCIAL  HISTORY  OF  OHIO  [252 

in  the  hands  of  the  tax  commission,  while  all  taxes  were  to 
be  paid  directly  to  the  state  treasurer. 

With  respect  to  the  assessment  of  real  and  personal 
property  of  individuals,  power  is  given  the  commission  to 
order  a  reassessment  of  the  same  in  any  taxing  district, 
whenever  in  their  judgment  it  was  not  assessed  at  its  true 
value  in  money.  A  new  appraiser  or  board  of  appraisers 
is  to  be  appointed  for  this  purpose.  Taken  in  conjunction 
with  the  quadrennial  assessment  of  real  estate  it  is  now 
possible  for  the  first  time  to  correct  inequalities  in  assess- 
ment as  soon  as  they  appear;  the  law  therefore  marks  a 
great  improvement  in  this  regard.  The  commission  also 
received  power  to  raise  or  lower  the  assessed  value  of  any 
real  or  personal  property,  and  to  require  county  auditors 
to  place  upon  the  tax  duplicate  any  omitted  property. 

The  tax  commission  act  of  1910  was  revised  during 
the  last  session  of  the  legislature,  and  was  considerably 
improved  by  a  rearrangement  of  the  sections  and  by  clearer 
definitions.178  At  the  same  time  the  powers  of  the  commis- 
sion over  corporations  were  strengthened  and  a  determined 
effort  made  to  force  them  to  pay  their  taxes.  The  treasurer 
of  state  is  directed  to  send  to  the  tax  commission,  instead 
of  to  the  attorney  general  as  formerly,  a  list  of  the  delin- 
quent public  utilities  and  corporations,  and  the  commission 
is  then  to  direct  the  attorney  general  to  institute  actions 
in  the  courts  if  it  wishes.  In  general  the  commission  is 
made  the  final  authority  in  all  matters  of  administration 
relating  to  taxation. 

In  January,  1911,  the  tax  commission  made  its  first  re- 
port, covering  a  period  of  about  six  months.  During  this 
period  their  main  efforts  had  been  directed  to  the  work  of 
assessing  the  various  public  utility  corporations,  which  had 
previously  been  assessed  by  various  special  boards.  While 
a  considerable  increase  was  made  in  the  valuation  of  prac- 
tically all  corporations — the  only  decreases  being  in  the 
case  of  water  transportation  and  natural  gas  companies  — 
the  true  value  was  in  no  case  reached,  since  the  personal 

"'Act  of  May  31,  1911.     (House  Bill  No.  491). 


253]  THE  GENERAL  PROPERTY  TAX  253 

and  real  property  of  individuals  was  still  so  greatly  under- 
valued. There  is  yet  room  for  a  large  growth  of  revenues 
from  these  sources  when  the  tax  commission  shall  have 
carried  its  work  to  completion. 

Another  important  part  of  the  work  of  the  commis- 
sion was  that  of  supervising  the  appraisement  of  real  prop- 
erty in  the  state.  Although  the  work  was  not  finished  at 
The  time  of  making  their  report,  they  stated  that  a  con- 
scientious effort  was  being  made  to  have  the  real  propertv 
of  the  state  assessed  at  its  true  value.  In  only  two  cases 
was  it  found  necessary  to  order  the  reappraisement  of  a 
taxing  district.  As  there  are  over  2500  taxing  districts  in 
the  state,  this  speaks  w^ll  for  the  fairness  of  the  valuation. 
Previously  the  assessed  valuation  had  been  about  fifty  per 
cent,  of  the  true  valuation.  A  table  published  by  the  tax 
coniflr&sion  of  1906  of  the  sale  value  and  the  tax  value  of 
real  estate  properties  transferred  in  four  counties  during 
the  year  1906  showed  that  the  assessed  value  was  respec- 
tively 43,  50,  36,  and  37  per  cent,  of  the  sale  price,179  and 
this  they  regarded  as  typical.  In  the  case  of  the  smallest 
properties,  worth  from  $350  to  $750,  the  assessed  value  was 
generally  higher  than  the  sale  price,  showing  an  added  dis- 
crimination against  the  small  property  owner.  Some  of 
the  larger  properties  were  assessed  as  low  as  10.8  per  cent, 
of  their  sale  price. 

Whether  this  effort  to  secure  the  true  cash  valuation 
of  property  for  taxing  purposes,  as  the  law  has  always  pro- 
vided, succeeds  or  not,  the  movement  is  in  the  right  direc- 
tion. The  main  evil  in  Ohio  in  this  connection  arises  main- 
ly in  the  resulting  inequality  between  individuals,  or  be- 
tween individuals  and  corporations,  rather  than  between 
different  counties,  for  the  rate  of  state  taxation,  which  is 
distributed  according  to  the  local  assessments,  is  very  small 
—only  .134  cents  per  $100.  The  tax  commission  of  1906 
recommended  the  abolishment  of  this  levy  and  the  complete 
separation  of  state  and  local  revenues,  but  this  was  the  only 
recommendation  made  by  them  upon  which  the  legislature 

"'Rep.,  p.  56. 


254  FINANCIAL  HISTORY  OF  OHIO  [254 

has  not  acted  favorably  up  to  the  present  time.  As  all  the 
revenue  thus  collected  by  the  state  is  for  school  purposes 
and  is  turned  back  to  the  counties  after  its  collection,  there 
is  really  no  tax  for  state  purposes  upon  general  property 
in  Ohio  today.  But  since  the  school  taxes  are  collected 
according  to  wealth  and  redistributed  according  to  the 
number  of  children  of  school  age,  the  effect  of  the  discon- 
tinuance of  a  state  levy  for  this  purpose  would  be  to  deprive 
some  of  the  poorer  districts  of  needed  funds  for  education. 
It  hardly  seems  likely,  therefore,  that  this  advice  will  be 
followed,  nor  desirable  that  it  should  be. 

Finally,  the  act  provided  for  removing  all  penalties 
upon  property  not  listed  for  taxation  prior  to  1911,  and 
starting  fresh  with  January  first  of  this  year.  In  order  to 
induce  tax-payers  to  declare  the  whole  amount  of  their 
property,  it  was  enacted  that  no  back  taxes  or  penalties 
should  be  assessed  upon  any  omitted  property,  if  such 
property  were  declared  for  taxation  in  1910.  But  begin- 
ning with  January  1,  1911,  back  taxes  and  penalties 
should  be  collected  from  all  omitted  property,  for  five  years 
preceding  the  date  when  it  might  be  discovered.  It  was 
hoped  that  this  exemption  and  the  limitation  of  the  tax 
rate180  would  lead  to  the  declaration  of  much  property  that 
had  hitherto  escaped  taxation.  The  slate  had  been  wiped 
clean  of  accumulated  penalties  in  much  the  same  fashion 
in  1826,  when  the  general  property  tax  was  first  intro- 
duced;181 and  now  that  the  administration  of  the  tax  was 
to  be  made  so  much  more  strict,  it  seemed  equitable  to 
allow  immunity  under  certain  conditions  to  those  who  had 
been  evading  taxation,  if  they  would  give  evidence  of  a 
disposition  to  deal  fairly  in  the  future. 

In  addition  to  the  tax  reforms  thus  far  described  cer- 
tain other  improvements  in  matters  of  finance  should  be 
mentioned,  as  they  are  part  of  the  movement  for  financial 
reform  which  has  characterized  both  legislation  and  admin- 

""For  the  act  limiting  the  tax  rate  see  American  Economic  Review, 
Dec.,  1911,  p.  517. 

"'See  above,  p.  199. 


255]  THE  GENERAL  PROPERTY  TAX  255 

istration  in  Ohio  for  the  past  two  or  three  years.  One 
important  advance  consisted  in  the  passage  of  depository 
laws,  to  secure  for  the  state  and  local  governments  interest 
on  public  moneys  on  deposit.  It  had  been  the  universal 
practice  for  public  officers  who  were  entrusted  with  public 
funds  to  retain  the  interest  on  such  funds,  which  was  paid 
by  the  banks  in  which  they  were  deposited.  The  interest 
thus  received,  which  amounted  in  some  cases  to  thousands 
of  dollars  a  year,  was  by  general  consent  regarded  as  one 
of  the  emoluments  pertaining  to  that  particular  political 
office.  In  1894  a  county  depository  law  was  passed,  but 
as  it  was  permissive  only  it  was  without  effect.  A  decade 
later,  in  1904,  a  state  and  school  depository  law  was  en- 
acted, and  finally,  in  1910,  a  township  law;  at  the  same 
time  all  the  laws  were  made  mandatory.182  Under  these 
laws  public  moneys  must  be  deposited  in  banks,  after  com- 
petitive bidding  if  possible,  at  not  less  than  2  per  cent.,  and 
the  depository  banks  must  give  satisfactory  security, 
usually  bonds  of  Ohio  or  some  minor  civil  division  of  the 
state.  The  interest  paid  by  the  banks  on  public  deposits 
runs  from  2  to  4^  per  cent.,  with  an  average  of  about 
314  per  cent.  During  the  year  ending  Nov.  15,  1909,  the 
amount  received  by  the  state  government  from  this  source 
was  |155,384. 

The  most  important  part  of  the  work,  however,  has 
lain  not  so  my.ch  in  the  enactment  of  new  legislation  as 
in  the  enforcement  and  better  administration  of  the  exist- 
ing laws.  This  is  well  illustrated  in  the  work  of  the  tax 
commission.  Without  invoking  any  powers  other  than 
those  conferred  upon  the  old  boards  of  appraisement  they 
succeeded  in  greatly  increasing  the  assessment  of  property, 
both  individual  and  corporate.  Under  the  old  system,  for 
instance,  the  county  auditors  had  assessed  the  property 
of  the  railroads,  and  for  the  last  four  or  five  years  the 
state  board  of  equalization  had  accepted  their  findings, 
inadequate  as  they  were,  without  a  change.  Within  six 
months  of  taking  office,  the  tax  commission  was  able  to 
182ioi  O.  L.  238,  243,  358. 


256  FINANCIAL  HISTORY  OF  OHIO  [256 

increase  their  assessments  100  per  cent.  Probably  the 
greatest  gain  in  these  reforms,  aside  from  the  increased 
interest  and  moral  awakening  of  the  people  of  Ohio,  lies 
in  the  establishment  of  the  permanent  tax  commission,  for 
this  will  be  able  to  direct  the  agencies  of  further  tax  re- 
form, to  report  abuses,  and  to  suggest  improvements.  On 
this  point  we  may  fairly  indorse  the  words  of  Governor 
Harmon  in  his  recent  message  to  the  legislature : 

I  am  more  firmly  convinced  than  ever  that  the  cost  of  the  Tax  Commission 
provided  with  all  necessary  help  is  the  most  productive  investment  the 
state  can  make.  But  apart  from  returns  in  actual  revenue,  however  great 
these  may  be,  the  moral  effect  of  the  assurance  that  fairness  and  justice 
will  rule  with  respect  to  all  tax-payers  alike  is  an  asset  in  good  govern- 
ment whose  value  cannot  be  expressed  in  figures. 


CHAPTER  V 

HISTORY     AND     TAXATION     OF     BANKS     AND 
BANKING   IN   OHIO. 

HISTORY   AND  TAXATION   OF   BANKS  TO   1819. 

To  understand  the  tax  legislation  with  regard  to 
banks  in  Ohio,  it  will  be  necessary  at  the  same  time  to 
sketch  briefly  a  history  of  banking;  much  of  the  banking 
legislation  is  intelligible  only  in  the  light  of  existing  con- 
ditions, and  a  thorough  knowledge  of  these  is  necessary 
to  a  full  appreciation  of  the  variable,  and  often  harsh 
actions  of  the  legislature. 

Under  the  territorial  government  private  associations 
did  what  little  banking  business  was  called  for  under  the 
primitive  conditions  of  a  frontier  settlement.  The  first 
bank  incorporated  by  the  state  was  the  Miami  Exporting 
Company,  of  Cincinnati,  in  April,  1803,  which  was  given 
"banking  privileges";  these  privileges  were  not  exercised 
until  1807,  when  it  abandoned  its  exporting  business  and 
devoted  itself  solely  to  banking.  Other  unchartered  asso- 
ciations seem  to  have  existed,  for  in  1808  the  Bank  of 
Marietta  asked  for,  and  was  given,  a  charter  until  1818. 
The  capital  was  limited  to  $600,000,  in  addition  to  which 
the  state  might  subscribe  another  $100,000;  the  state  was 
to  have  one  year's  credit  in  paying  for  these  shares,  but 
was  to  receive  profits  as  if  paid  for.  There  was  no  clause 
providing  for  specie  payment  and  no  penalty  for  suspen- 
sion.1 The  Banks  of  Chillicothe  and  Steubenville  were 
chartered  the  same  year  with  the  same  provisions.  In 
1812  and  1813  three  other  banks  were  incorporated. 

During  the  session  of  1813-1814,  a  bill  was  introduced 
in  the  legislature  to  tax  bank  stock,  in  accordance  with  a 
report  of  the  Joint  Committee  on  Finance,2  but  failed  of 
passage.  The  act  of  February  8,  1815,  was  the  first  law 

'Sumner,  History  of  Banking  in  the  U.  S.,  p.  59. 
*Ho.  /.,  1814,  p.  142. 


258  FINANCIAL  HISTORY  OF  OHIO  [258 

levying  a  tax  on  banks;  this  provided  for  an  annual  tax 
of  4  per  cent,  on  dividends.  If  any  bank  failed  to  report, 
the  auditor  was  to  levy  1  per  cent,  on  the  nominal  capital 
of  the  bank.  The  sheriff  was  authorized  to  present  the  bill 
of  the  auditor  to  the  bank,  and,  in  case  it  was  not  paid 
immediately,  with  4  per  cent,  additional  for  the  sheriff's 
fees,  to  levy  on  the  specie  and  notes.  If  he  could  not  obtain 
enough  of  these,  he  was  to  seize  any  other  property  of  the 
bank,  advertise,  and  sell  it. 

After  the  conclusion  of  the  War  of  1812,  a  great  in- 
crease of  population  took  place  in  Ohio,  as  the  result  of 
renewed  immigration  into  that  state.  "The  numerous 
banks,  which  had  been  chartered  before  and  during  the 
war,  and  which  continued  to  spring  into  existence  in  every 
part  of  the  state,  supplied  an  abundant  circulating 
medium."3  Taking  advantage  of  the  opportunity,  un- 
authorized persons  began  to  issue  notes,  and  against  these 
Ohio  now  began  a  war  "which  she  carried  on  longer  and 
more  vigorously,  because  apparently  with  less  success,  than 
any  other  state."4 

By  the  act  of  February  8, 1815,  persons  signing  or  isu- 
ing  notes  without  proper  authority  were  punished  by  im- 
prisonment for  one  year  and  a  fine  not  exceeding  $5000.  All 
contracts  ,with  persons  or  firms  issuing  such  notes  wrere 
to  be  void.  By  the  act  of  January  27,  1816,  passed  in  the 
next  session,  the  crusade  against  unauthorized  banking 
was  directed  against  persons  acting  as  agents  of  any 
bank  of  issue  chartered  by  the  laws  of  another  state.  A 
fine  of  f  1000  was  prescribed  for  each  offense,  the  use  of 
the  courts  and  the  processes  of  justice  were  forbidden  to 
all  such  agencies,  and  any  one  interested  in  such  a  bank 
was  made  personally  liable  to  any  note-holder.  These 
acts  are  interesting  and  important  as  showing  that  the 
subsequent  attack  upon  the  Second  Bank  of  the  United 
States  was  not  isolated  or  sudden,  but  was  rather  part 
of  a  long  bank-war. 

'Chase,  Ohio  Statutes,  I,  42. 
4Sumner,  op.  cit.,  p.  91. 


259]  HISTORY  AND  TAXATION  OF  BANKS  259 

During  the  same  session  the  question  as  to  how  the 
state  could  best  derive  a  revenue  from  the  banks  engaged 
the  attention  of  the  legislature.  In  response  to  a  letter 
from  the  governor  the  auditor  drew  up  a  plan  by  which  the 
banks  should  give  to  the  state  20  per  cent,  of  their  capital 
stock,  to  be  paid  for  partly  in  cash  and  partly  out  of  the 
profits  from  the  stock,  in  return  for  which  the  state  would 
extend  their  charters,  make  their  notes  a  legal  tender,  and 
agree  to  charter  no  other  banks.  As  the  charters  of  all  the 
banks  in  the  state,  except  one,  would  expire  in  1818, 
the  auditor  thought  they  would  accede  to  the  plan;  and  if 
the  one  bank  should  prove  recalitrant,  it  might  be  taxed 
in  the  same  proportion.  Both  governor  and  auditor  dwelt 
upon  the  advantages  of  having  a  state  fund  which — the 
latter  thought — would  probably  yield  "an  annual  dividend 
of  80,000  dollars  or  more,  and  wrill  probably  ever  after- 
wards supercede  the  necessity  of  resorting  to  taxation  for 
the  ordinary  expenses  of  government."5 

This  plan  was  presented  to  the  legislature  as  an 
alternative  to  a  scheme  for  taxing  the  banks,  and  was 
carried  through  by  the  bank  party,  which  was  largely  in  the 
majority.  An  amendment  taxing  the  banks  5  per  cent,  on 
their  dividends  was  rejected  43  to  12,  as  was  another,  re- 
quiring banks  to  redeem  their  notes  in  specie,  43  to  11. 
The  plan  outlined  above  was  then  enacted  into  law,6  by 
a  vote  of  42  to  13.  This  act  created  six  new  banks,  each 
with  a  capital  of  $100,000,  chartered  seven  unincorporated 
banks  with  which  the  state  had  previously  been  at  war,  and 
extended  the  charters  of  those  already  in  existence  from 
1818  to  1843.  By  this  law,  each  bank  was  required  to  set 
off  to  the  state,  one  twenty-fifth  of  its  capital  stock.  On 
this  amount  of  stock  the  state  was  to  receive  regular  divi- 
dends, and  in  the  final  winding  up  of  the  concerns  of  each 
institution,  was  to  be  entitled  to  one  twenty-fifth  of  its 

*Ho.  ].,  1816,  pp.  85-91.  Cf.  also  rep.  of  Ho.  Com.  of  Finance,  Jan.  18, 
1814  (Ho.  J .,  1814,  pp.  178-180),  which  had  already  suggested  the  estab- 
lishment of  a  similar  fund. 

"Act  of  Feb.  23,  1816.    Ho.  J.,  1816,  335,  ff. 


260  FINANCIAL  HISTORY  OF  OHIO  [260 

property.  No  provision  was  made  to  pay  for  the  state 
stock;  except  that  each  bank  was  required  to  set  apart, 
annually,  such  a  part  of  its  profits,  as  would  at  the  expira- 
tion of  its  charter,  produce  a  sum  adequate  to  that  pur- 
pose.7 The  consideration  for  this  bonus  was  the  extension 
of  the  charters  of  all  the  banks  enumerated  in  the  act,  and 
of  all  others  in  the  state  which  should  accept  the  terms 
offered  by  it,  to  the  year  1843;  exemption  from  all  state 
taxation;  and  a  sort  of  implied  promise  that  no  other 
banks  would  be  created  during  their  charters.  Some  of  the 
banks  accepted  and  some  refused  this  offer;  but  the  whole 
scheme  failed  with  the  failure  or  refusal  to  comply  with  its 
provisions  by  the  banks  which  originally  concurred  in  it.8 

THE    ATTEMPT  TO   TAX   THE  BANK   OF   THE    UNITED   STATES.9 

After  the  expiration  of  the  charter  of  the  First  Bank 
of  the  United  States  in  1811  there  was  a  great  increase 
in  the  number  of  state  banks  in  Ohio,  as  in  the  West  gen- 
erally. In  Ohio  there  were  four  banks  in  1811;  by  1815 
the  number  had  grown  to  twelve,  and  in  the  following  year 
nine  additional  banks  were  incorporated.10  The  charters 
of  these  early  banks  contained  no  clauses  for  specie  pay- 

7It  is  obvious  that  in  effect  this  amounted  to  an  annual  tax  of  one 
per  cent,  on  the  capital  stock  of  the  banks,  which  was  to  accumulate. 

8Chase,  Ohio  Statutes,  I,  42.  For  the  later  history  of  these  banks, 
see  below,  p.  271. 

'For  a  detailed  study  of  this  subject,  see  my  article  on  "Taxation  of 
the  Second  Bank  of  the  United  States  by  Ohio",  in  American  Historical 
Review,  Jan.,  1912.  For  permission  to  use  part  of  this  material  in  this 
place  thanks  are  due  the  editor,  Dr.  J.  F.  Jameson. 

10A.  Gallatin,  Considerations  on  the  Currency  and  Banking  Systems 
of  the  United  States  (Philadelphia,  1833),  p.  103.    From  the  tables  given 
there  it  is  possible  to  construct  a  table  showing  the  number  and  capital 
of  banks  in  Ohio  at  different  periods,  as  follows : 
Date.  No.  of  Banks.  Total  Capital. 

1811 4  $   895,000 

1815 12  1,434,719 

1816 21  2,061,927 

1820 20  1,797,463 

1830 II  1,454,386 


261]  HISTORY  AND  TAXATION  OF  BANKS  261 

ments,  and  no  penalty  for  suspension,  while  the  power  of 
note  issue  was  apparently  unrestricted.  In  1817  nine  addi- 
tional banks  were  incorporated,  in  which  for  the  first  time 
restrictions  were  imposed. 

The  numerous  banks  supplied  an  abundant  circulating 
medium,  far  in  excess  of  the  real  needs  of  the  community. 
The  loose  credit  system  of  selling  public  lands  also  led 
to  bank  note  inflation  on  the  part  of  the  local  bankers; 
and  this  was  increased  after  the  suspension  of  specie  pay- 
ments in  1814,  by  the  action  of  the  federal  government 
in  accepting  state  bank  notes  in  payment  of  the  public 
lands  and  other  public  dues.  After  the  War  of  1812,  more- 
over, the  western  country  experienced  a  "boom"  in  which 
Ohio  fully  shared.  "Speculation,  stimulated  by  every  in- 
centive, ran  into  wild  and  extravagant  excesses.  Improve- 
ments of  every  kind,  under  its  strong  propulsion,  advanced 
with  wonderful  rapidity."11  It  was  a  period  of  inflation,  of 
speculation,  and  of  rising  prices,  which  must  ultimately 
terminate  in  a  financial  crash.  Things  were  rapidly  tend- 
ing to  this  state,  when  two  branches  of  the  Bank  of  the 
United  States,  which  had  been  chartered  by  Congress  in 
1816,  were  established  at  Cincinnati  and  Chillicothe. 
These  branches  issued  their  notes  in  Ohio  to  a  very  large 
amount,  and  as  they  were  convertible  they  displaced  the 
issues  of  the  local  banks.  Consequently  there  soon  de- 
veloped strong  opposition  to  fhe  Bank  in  Ohio,  and  also 
in  other  states. 

Nine  months'  experience  with  the  Cincinnati  branch 
seems  to  have  persuaded  the  legislature  that  it  was  detri- 
mental to  the  success  of  the  local  banks,12  and  that,  as  it 
was  not  paying  taxes  while  they  were,  it  occupied  a  favored 
position.  Accordingly  a  committee  was  appointed  in  the 
House  in  December,  1817,  to  take  into  consideration  the 
propriety  and  expediency  of  taxing  the  branches  of  the 
Bank  of  the  United  States  situated  in  Ohio.  A  report 
by  them  against  the  expediency  of  levying  such  a  tax  was 

"Chase,  Ohio  Statutes,  I,  42. 
"Ho.  J.,  1819,  p.  400. 


262  FINANCIAL  HISTORY  OF  OHIO  [262 

reversed  by  the  House,  37-22. 13  A  substitute  for  their 
report,  asserting  the  right  of  the  state  to  levy  such  a 
tax  and  the  expediency  of  doing  it  immediately  was  voted 
in  January  by  large  majorities.14  To  carry  out  these  pro- 
posals a  bill  was  introduced  "to  levy  a  tax  on  the  capital 
of  the  subscribers  to  the  Bank  of  the  United  States,  em- 
ployed in  banking  within  this  state".  After  being  read  a 
third  time,  further  consideration  was  postponed  until  the 
following  December. 

In  his  message  to  the  legislature  at  the  opening  of 
the  session  of  1818-19,  the  governor  discussed  the  banking 
situation  at  length,  and  referred  as  follows  to  the  Bank 
of  the  United  States:15  "Since  the  incorporation  of  the 
Bank  of  the  U.  S.,  and  since  the  passage  of  the  present 
law  of  this  state  against  unauthorized  banking  companies, 
that  institution  has  established,  without  asking  leave,  two 
agencies  ....  whose  course  of  proceeding,  the 
banks  loudly  complain,  cramps  the  operations,  and  dimin- 
ishes the  profits  of  the  latter,  as  well  as  impairs  the  state 

revenues  arising  from  these  sources But 

whether  the  branches  remain  among  us,  of  right,  or  by 
permission,  and  while  the  state  banks  are  subjected  to  the 
imposition  of  taxes,  or  an  equivalent,  there  appears  no 
evident  reason  why  those  branches  should  be  exempt. 
Their  exemption  wTould  be  a  partiality,  unjust  to  the  local 
banks.  .  .  ." 

The  House  Committee,  finally,  to  whom  the  matter 
was  referred  at  the  previous  session  for  report,  recom- 
mended "the  propriety  of  providing  by  law,  that  if  the 
branches  established  within  this  state  shall  remain  here 
and  transact  business,  beyond  a  certain  day,  a  tax  shall 
be  assessed  and  collected  of  $50,000  annually  upon  each 
branch."16  In  accordance  with  this  recommendation  a 


aHo.  J.,  1817-1818,  pp.  144-146. 

" 1 bid.,  pp.  307-315. 

"Gov.  Mess.,  Ho.  J.,  1818-19,  pp.  92,  94. 

"Ho.  J.,  1818-19,  p.  409. 


263]  HISTORY  AND  TAXATION  OF  BANKS  263 

bill  was  introduced  into  the  legislature  and  was  finally 
enacted  into  law  on  February  8,  1819. 

Whereas  the  president  and  directors  of  the  Bank  of  the  U.  S.  have 
established  two  offices  of  discount  and  deposit  in  this  State,  at  which  they 
transact  banking  business,  by  loaning  money  and  issuing  bills,  and  by 
trading  in  notes  and  bills;  and  whereas  it  is  just  and  necessary  that  such 
unlawful  banking,  while  continued  should  be  subject  to  the  payment  of  a 
tax  for  the  support  of  the  government 

It  was  provided  that  if  any  of  these  associations  continued 
in  business  after  September  1,  they  should  be  taxed,  the 
Bank  of  the  U.  S.  $50,000  per  annum  for  each  office,  and 
every  other  company  $10,000.  On  September  15  of  each 
year  the  auditor  was  to  assess  these  taxes  against  the  com- 
panies, and  to  make  out  his  warrant  to  the  agent  whom  he 
should  appoint  to  collect  the  tax.  In  case  of  default,  the 
agent  was  authorized  to  levy  on  the  goods  of  the  bank 
or  its  credit;  he  could  seize  the  specie  or  notes,  searching 
the  bank  for  them.  The  officers  of  the  bank  might  be  put 
to  oath  to  disclose  where  the  funds  were,  or  they  might  be 
summoned  to  court  and  examined,  a  refusal  to  answer 
constituting  contempt.  Debtors  to  the  bank  must  pay 
the  state  until  the  amount  of  the  tax  was  reached.  The 
sum  collected  was  to  be  paid  by  the  agent  to  the  auditor 
and  by  him  to  the  treasurer.  The  agent  was  to  have,  as 
his  remuneration,  two  per  cent,  of  the  amount  collected  in 
specie  or  notes ;  five  per  cent,  of  goods  taken  in  execution ; 
and  ten  per  cent.,  if  further  proceedings  were  required. 

Similar  taxes  had  already  been  laid  on  the  Bank  of 
the  U.  S.  in  five  other  states,  namely,  Maryland  ($15,000), 
Tennessee  ($50,000),  Georgia  (3iy±  cents  on  $100  cap- 
ital), North  Carolina  ($5,000),  and  Kentucky  ($60,000), 
while  the  constitution  of  Indiana  in  1816  and  of  Illinois 
in  1818  prohibited  the  establishment  of  any  but  state  banks 
within  their  boundaries.  The  subject  was  al^o  debated  in 
the  legislatures  of  Virginia,  South  Carolina,  and  New 
York.17  As  to  their  constitutional  right  to  levy  such  a 


"See  Catterall,  The  Second  Bank  of  the  U.  S.,  pp.  64-65. 


264  FINANCIAL  HISTORY  OP  OHIO  [264 

tax,  the  majority  of  the  Ohio  legislature  seem  not  to  have 
entertained  any  doubt.18 

The  year  1819  was  marked  by  a  crisis,  the  first  in  the 
United  States.  Prices  fell  disastrously,  many  banks  failed 
and  the  suspension  of  specie  payments  was  general.  Corn 
was  selling  at  10  and  wheat  at  20  cents  a  bushel  (specie) 
in  some  parts  of  Kentucky,19  and  at  Cincinnati  the  follow- 
ing year  similar  prices  prevailed.20  At  such  prices  farmers 
could  not  pay  their  debts  and  defaulted  on  their  loans, 
while  the  banks  did  not  redeem  their  notes.  Ohio  enacted 
stringent  laws  in  1819  and  1820  to  compel  the  banks  to 
meet  their  obligations,  though  not  very  effectively.  Neigh- 
boring states,  however,  yielded  to  the  pressure  and  passed 
various  relief  laws  for  the  benefit  of  debtors  and  of  banks 
which  had  suspended  specie  payments.  Thus  Tennessee 
passed  a  stay  law  in  1819,  but  it  was  declared  unconstitu- 
tional in  1821.  Illinois,  in  January,  1821,  suspended  execu- 
tions for  debt  until  November  of  the  same  year.  Missouri 
established  a  state  loan  office  in  1821.21 

Owing  to  the  adverse  balance  of  trade  and  the  drain 
of  specie  from  the  western  country  by  the  Bank  of  the 
United  States,  it  was  difficult  to  keep  sufficient  specie  in 
the  state.  "It  is  established,"  wrote  Niles  in  June,22  "that 
800,000  dollars  in  specie  have  been  drawn  from  Ohio 
within  the  last  twelve  months,  for  the  Bank  of  the  United 
States."  The  Bank  consequently  was  compelled  to  fore- 
close its  mortgages  and  realize  upon  them.  "As  a  con- 
sequence of  the  transfer  of  real  estate,  the  Bank  owned 
a  large  part  of  Cincinnati:  hotels,  coffee-houses,  ware- 
houses, stores,  stables,  iron  foundries,  residences,  vacant 
lots."23  The  effect  of  this  upon  the  former  owners  of  these 
valuable  properties  may  easily  be  imagined.  There  was, 

"Chase,  Ohio  Statutes,  I,  43. 
MNiles  Register,  Sept.  2,   1820. 

"Corn   sold  at  10  cents,  wheat  at  from  125/2   to  25  cents   a  bushel; 
whisky  was  dull  at  15  cents  a  gallon.    U.  S.  Gazette,  May  23,  June  23,  1821. 
aFor  further  details  see  Sumner,  op.  cit.,  p.  119,  ff. 
"Miles'  Register,  June  26,  1819,  XVI,  298. 
"Catterall,  op.  cit.,  p.  67. 


265]  HISTORY  AND  TAXATION  OF  BANKS  265 

moreover,  a  general  spirit  of  hostility  to  the  bank  in  the 
West,  where  it  was  regarded  as  an  intruder,  often  against 
the  constitution  and  statutes  of  a  state,  possessed  of 
superior  privileges,  paying  no  taxes,  and  acting  as  mentor 
to  the  local  banks. 

In  the  meantime,  while  the  feeling  of  hostility  to  the 
bank  was  rising  higher,  the  case  of  McCulloch  v.  Maryland 
was  decided  on  March  7,  1819,  to  the  effect  that  the  states 
were  debarred  by  the  federal  Constitution  from  levying  a 
tax  upon  a  bank  chartered  by  Congress.24  The  Ohio  law, 
however,  directing  the  auditor  of  state  to  levy  and  collect  the 
tax  of  $50,000  on  each  brancli  of  the  Bank  of  the  U.  S.  that 
should  continue  to  transact  business  within  the  state  after 
September  1,  remained  unrepealed.  This  law  the  auditor 
considered  imperative  on  himself,  in  which  opinion  he  was 
upheld  by  the  governor,  and  that  it  was  his  duty  under  the 
law  to  execute  its  provisions,  unless  enjoined  by  proper 
authority.25  The  auditor  was  really  placed  in  an  em- 
barrassing predicament,  but  held  that  as  a  state  officer  his 
first  duty  was  to  carry  out  the  mandates  of  the  state  laws. 
On  September  11  he  was  served  with  a  notice  that  applica- 
tion would  be  made  to  enjoin  the  proceedings  under  the 
tax  law.  On  the  morning  of  September  15  the  auditor  was 
further  served  with  a  copy  of  a  petition  in  chancery,  pray- 
ing that  he  be  enjoined  from  charging  the  bank  with  the 
proposed  tax,  and  also  with  a  subpoena  from  the  same 
court  to  appear  to  answer  the  petition  on  the  first  Monday 
of  the  following  January.  As  no  one  of  these  documents 
constituted  an  injunction  upon  his  proceedings  under  the 
law,  the  auditor  issued  his  warrant  to  John  L.  Harper, 
for  the  collection  of  the  tax. 

Before  delivering  this  warrant,  however,  the  auditor 
submitted  the  various  papers  to  the  Secretary  of  State,  and 
asked  him  to  secure  legal  advice  as  to  whether  they  did 
operate  as  an  injunction.  In  reply  he  received  the  written 

"4  Wheaton,  316.    The  text  of  the  decision  is  given  in  full  in  Niles, 
XVI,  68. 

"And.  rep.,  Dec.  g,  1819.    Ho.  ].,  1820,  p.  38. 


266  FINANCIAL  HISTORY  OF  OHIO  [266 

opinion  of  several  lawyers  "that  it  did  not  appear  that 
there  was  any  order  of  court  allowing  an  injunction,  or 
any  writ  of  injunction,  or  indeed  any  document  whereby 
the  defendant  can  be  charged  with  notice  of  the  contents 
of  the  petition."26  Accordingly  he  delivered  the  warrant 
to  Harper  with  instructions  to  go  ahead.  The  latter  went 
to  the  branch  at  Chillicothe  on  September  17,  and  upon 
the  cashier's  refusal  to  pay  the  tax,  jumped  over  the  coun- 
ter, "and  with  force  and  violence  ....  did  take 
from  the  said  office  money  and  notes  to  the  amount  of  up- 
wards of  the  sum  of  one  hundred  and  twenty  thousand 
dollars."27  Five  days  later  the  amount  in  excess  of  $100,- 
000  was  restored  to  the  bank.  The  money  thus  taken  was 
paid  into  the  Bank  of  Chillicothe  after  banking  hours,  and 
left  there  overnight.  The  next  day  it  was  taken  to  Colum- 
bus, and  $98,000  was  deposited  in  the  Franklin  Bank  of 
that  city  to  the  credit  of  H.  M.  Curry,  the  treasurer  of 
state,  the  other  $2,000  being  retained  by  Harper  as  his  fee. 
Meanwhile  the  injunction  asked  for  had  been  served 
upon  Osborn,  the  auditor,  on  September  18,  in  which  he 
was  directed  not  to  collect  the  tax,  nor  pay  it  out  if  col- 
lected; he  was  also  requested  by  the  bank  to  return  the 
money  collected.  This  he  refused  to  do,  as  the  matter  had 
now  passed  out  of  his  control.28  Soon  after  this  Harper 
and  Orr,  one  of  the  latter's  assistants,  were  arrested  at 
the  suit  of  the  Bank  in  an  action  at  law  for  the  recovery  of 
the  money  taken  by  them.  Bail  was  required  to  double 
the  amount  of  money  collected,  and  an  action  for  habeas 
corpus  having  failed,  they  remained  in  prison  until  the 
following  January,  when  they  were  released  by  the  federal 
circuit  court  on  the  ground  that  the  arrest  was  irregular.29 
On  September  22  an  injunction  was  granted  by  Judge 

"Ibid.,  p.  40. 

"Petition  of  the  Bank  of  the  U.  S.,  etc.,  in  Ho.  J.,  1820-21,  p.  53.  The 
exact  sum  taken  was  $120,425,  of  which  $7,93O  was  a  treasury  deposit 
belonging  to  the  U.  S. 

*Aud.  rep.  Ho.  J.,  1820,  p.  41. 

"For  an  account  of  the  irregularity  in  their  arrest,  see  McMaster, 
History  of  the  People  of  the  U.  S.,  IV,  499- 


267]  HISTORY  AND  TAXATION  OF  BANKS  267 

C.  W.  Byrd,  the  United  States  District  Judge,  restraining 
the  auditor,  treasurer,  and  the  depository  bank  from 
making  any  disposition  of  the  moneys  collected  as  a  tax 
from  the  Bank.30 

By  an  arrangement  of  the  counsel  of  both  parties  a 
decree  was  entered,  ordering  the  treasurer  to  restore  the 
amount  of  the  tax  together  with  interest  on  the  specie 
part,  but  providing  that  the  interest,  the  $2,000  withheld 
by  Harper  as  his  fee,  and  the  costs  be  appealed  for  final 
decision  to  the  Supreme  Court  of  the  United  States.  A 
perpetual  injunction  was  also  granted  against  the  collec- 
tion of  any  tax  in  future  under  the  tax  law  of  Ohio.  Not 
until  1824  did  the  Supreme  Court  finally  hand  down  their 
decision. 

During  the  session  of  1820-21  the  legislature  debated 
the  banking  situation  and  the  attitude  of  the  Bank  of  the 
United  States  at  length.  A  very  hostile  report  was  made 
by  a  committee  of  the  House,31  to  whom  was  referred  the 
whole  subject.  In  pursuance  of  the  recommendation  there- 
in made,  two  acts  were  passed  by  the  legislature,  threaten- 
ing reprisals  on  the  one  hand  and  holding  out  an  olive 
branch  with  the  other.  The  first  of  these  was  "an  act  to 
withdraw  from  the  Bank  of  the  United  States  the  protec- 
tion and  aid  of  the  laws  of  this  state,  in  certain  cases."32 
Sheriffs  and  jailers  shall  not,  after  September  1  next,  take 
into  custody  persons  arrested  at  the  suit  of  the  bank. 
Officers  of  justice  shall  not  receive  acknowledgements  for 
the  Bank.  Notaries  public  shall  not  make  protest  of  notes 
payable  to  the  Bank.  Heavy  penalties  were  provided  for 
violating  the  law.  The  last  section  of  the  act  provided, 
however,  for  the  suspension  of  these  provisions  under  cer- 
tain conditions.  If  the  Bank  would  discontinue  its  suits 
against  the  state  officers,  and  would  in  future  submit  to 
an  annual  tax  of  4  per  cent,  on  the  dividends  of  their  busi- 

"Ho.  ].,  1819-20,  p.  61. 
nHo.  ].,  1820-21,  pp.  98-132. 

"Act  of  Jan.  29,   1821.     Chase,  Ohio  Statutes,  II,  1185.     The  House 
passed  this  act  by  a  vote  of  47  to  n.    Ho.  /.,  1820-21,  p.  324. 


268  FINANCIAL  HISTORY  OF  OHIO  [268 

ness  in  Ohio  ;33  or  if  it  would  withdraw  its  branches,  then 
the  act  should  be  suspended. 

Four  days  later  a  second  act  was  passed  setting  forth 
still  more  explicitly  the  terms  upon  which  the  state  was 
willing  to  compromise.34  The  legislature  stated  its  willing- 
ness to  refund  the  excess  of  the  tax  over  4  per  cent,  on 
the  dividends.  Whenever  the  Bank  will  withdraw  its  suits 
against  the  state  officers  and  will  submit  to  the  payment 
of  a  tax  equal  to  4  per  cent,  on  its  dividends,  or  if  the  Bank 
will  withdraw  its  branches  from  the  state,  $90,000  wrill  be 
refunded  to  it.  And  in  future  a  tax  of  $2,500  shall  be 
collected  annually  as  a  tax,  or  else  4  per  cent,  on  the 
dividends.  No  attention  was  paid  to  these  proposals  by 
the  Bank,  and  the  act  of  outlawry  accordingly  went  into 
effect  the  following  September.  It  does  not  seem  to  have 
been  observed,  however,  but  remained  a  dead  letter  on  the 
statute  books  until  it  was  finally  repealed  five  years  later, 
on  January  18, 1826.35 

No  further  legislation  was  enacted  relative  to  the 
Bank  of  the  United  States.  In  1822  a  resolution  to  repeal 
the  law  levying  the  tax  on  the  branches  of  the  Bank  of  the 
United  States  was  rejected  in  the  Senate,  27  to  6.36  By 
this  time  the  bad  effects  of  the  crisis  of  1819  had  largely 
passed  awray,  the  necessary  liquidation  had  taken  place, 
and  prices  were  rising  again.  The  attention  of  the  people 
and  the  legislature  was  moreover  being  absorbed  by  other 
topics  of  even  greater  interest,  namely  schools  and  canals. 
When  the  case  of  Osborn  vs.  the  Bank  of  the  United  States 
came  up  an  appeal  before  the  Supreme  Court  at  the 
February  term,  1824,  there  was  no  excitement.  The  decree 
of  the  circuit  court  was  affirmed,  except  that  interest  should 
not  be  paid  on  the  coin  part  of  the  money  taken.37  As  soon 
as  the  decision  was  announced  Ohio  acquiesced  fully,  and 
made  no  further  effort  to  contest  the  point  at  issue. 

"This  was  the  rate  of  taxation  on  Ohio  banks. 

"Act  of  Feb.  2,  1821.    Chase,  Ohio  Statutes,  II,  1198. 

"O.  L.,  ch.  675,  §i. 

"Niles'  Register,  Jan.  5,  1822,  XXI,  303. 

"March  19,  1824.    9  Wheaton,  739. 


269]  HISTORY  AND  TAXATION  OF  BANKS  269 

Throughout  these  proceedings  [wrote  Salmon  P.  Chase,  then  a 
young  lawyer  in  Cincinnati38]  the  state  and  her  officers  manifested  the 
utmost  respect  for  the  constitutional  tribunals  of  the  country.  They 
believed,  conscientiously,  that  the  state  possessed  the  right  to  tax  the 
bank,  and  measures  were  taken  for  the  exercise  and  enforcement  of  that 
right.  But  in  no  instance  was  any  indignity  offered  to  any  judicial 
tribunal,  nor  was  resistance,  in  any  case,  opposed  to  judicial  process.  The 
state  was  true  to  the  principles  which  had  characterized  her  former  course ; 
and  when  the  Supreme  Court  decided  against  her,  she  exhibited  an 
example  of  dignified  and  unconstrained  submission  to  the  judgment  of 
that  high  arbiter. 

STRUGGLE  OVER  NOTE  ISSUES,  1819-1854. 

During  the  same  session  which  saw  the  beginning  of 
the  war  against  the  Bank  of  the  United  States,  an  act  was 
passed  against  those  state  banks  which  did  not  redeem 
their  notes.39  The  holder  of  the  notes  was  permitted  to 
recover  six  per  cent,  damages.  Post  notes  and  bank  notes 
under  $1  were  forbidden.  These  prohibitions  indicate 
clearly  enough  a  condition  of  inflation,  which  is  still  more 
strikingly  evidenced  by  another  law40  which  made  it  a  mis- 
demeanor to  accept  a  bank  note  for  less  than  its  face  value 
and  imposed  a  fine  of  not  over  $500  for  so  doing.  This  act 
was  repealed  the  following  year,41  but  at  the  same  session 
the  prohibition  of  post  notes  was  repeated.42  and  the  pre- 
vious laws  against  banks  which  did  not  redeem  their  notes 
were  strengthened  and  re-enacted.  Of  the  twenty-five  banks 
in  the  state  in  1819  only  six  or  seven  were  redeeming  their 
notes.43  They  were  classified  as  seven  good,  four  decent, 
four  middling,  and  four  good  for  nothing.44 

The  state  was  fairly  flooded  at  this  time  with  bank 
paper,  most  of  which  was  unprotected  by  adequate  reserves, 

"Chase,  Statutes  of  Ohio.     Preliminary  Sketch.    I,  43. 
"Feb.  5,  1819.  This  was  virtually  reenacted,  with  more  stringent  pro- 
visions, Feb.  1 8,   1820,  and  Feb.  2,   1821. 
"Feb.  8,  1819. 
"Jan-  24,  1820. 
"Feb.  22,  1820. 
43Sumner,  op.  cit.,  p.  152. 
"Niks'  Register,  XVII,  186. 


270  FINANCIAL  HISTORY  OF  OHIO  [270 

and  some  of  which  was  dishonestly  issued.  The  report  of 
a  committee  appointed  "to  enquire  into  the  state  of  the 
funds  in  the  treasury"  in  1820,  reported45  a  total  balance 
of  $214,396,  of  which  $141,336,  or  66  per  cent,  consisted 
of  bank  notes.46  There  was  $17,279  in  silver  coin,  and 
$3,931  in  gold  coin ;  the  rest  consisted  of  credits  in  banks, 
paper  representing  loans,  and  redeemed  auditors'  bills. 
Subsequent  reports  of  the  auditor  are  filled  with  accounts 
of  his  efforts  to  enforce  judgments  against  various  banks, 
whose  paper  he  held.  In  1821  only  one  bank  in  twenty- 
one  redeemed  any  of  its  notes,  and  that  one  redeemed  only 
$5,000  out  of  $16,000  presented.47  In  1822,  eight  were 
reported  bankrupt;  in  1831,  twenty  were  reported  in  that 
condition. 

The  worst  offenders  against  sound  banking  principles 
and  the  most  unscrupulous  in  the  issue  of  their  notes  had 
been  the  banks  chartered  or  incorporated  in  1816.48  In 
1820  a  joint  legislative  committee  was  appointed 

to  take  into  consideration  the  propriety  and  expediency  of  corresponding 
with  the  several  chartered  banks  in  this  state  to  ascertain  upon  what 
terms  they  would  be  willing  to  surrender  their  charters;  and  what  meas- 
ures would  be  most  expedient  to  compel  the  payment  of  their  notes  in 
specie. 

Later  in  the  session  they  reported  that  the  only  part  of 
the  law  which  all  the  banks  had  observed  was  that  requir- 
ing a  certificate  of  acceptance  of  their  charters.50  The 
other  provisions  were  honored  only  in  the  breach.  No 

4*Ho.  J.,  1820,  p.  307. 

"Of  this  amount  $78,180  was  notes  of  the  Bank  of  the  U.  S.  or  its 
branches. 

4Treas.  rep.  Ho.  J.,  1821,  p.  66.  The  treasurer  reported  that  $33,933 
in  bank  notes  were  in  the  treasury,  for  which  specie  could  not  be  obtained 
at  the  banks  issuing  them.  Of  these,  $11,081  was  "tolerable  current"; 
$1483  "irremediably  lost  to  the  state";  the  res,t  doubtful.  Four  years  later 
the  treasurer  reported  the  sale  of  funds  consisting  of  depreciated  banknotes 
and  claims  against  banks  amounting  to  $11,511,  for  $4,345  in  cash.  Ho.  J., 
1825,  p.  83. 

**Act  of  Feb.  23,  1816.    See  p.  259. 

"Sen.  Jo.,  1820,  p.  85. 

"Sen.  Jo.,  1820,  p.  175. 


271]  HISTORY  AND  TAXATION  OF  BANKS  271 

action  was  taken,  however,  looking  to  a  change  in  their 
charters,  until  1825.  An  act  was  then  passed51  amending 
the  law  of  February  23,  1816,  which  had  granted  to  the 
state  one  share  in  every  twenty-five  of  the  capital  stock 
of  all  banks  chartered  under  that  act,  by  providing  for  the 
return  to  the  banks  of  all  shares  which  had  been  set  off  to 
the  state,  if  they  would  pay  the  state  two  per  cent,  on  their 
dividends  from  their  organization  to  this  time,  and  four 
per  cent,  on  their  dividends  for  the  future,  and  concede  to 
the  state  the  right  to  tax  them. 

It  is  impossible  to  sa}^  exactly  how  many  of  the  banks 
accepted  this  proposal,  as  no  record  appears  in  the  docu- 
ments of  this  period.  But  some  years  later,  by  the  act  of 
February  21,  1843 — the  year  when  the  charters  of  these 
banks  expired — five  old  banks  were  re-chartered  under  a 
new  law.52  The  other  eight  had  apparently  either  accepted 
this  law  of  February  5,  1825,  or  had  gone  out  of  existence 
in  the  interval.  That  is,  not  more  than  eight  banks  sur- 
rendered their  charters,  if  that  many.  In  1834  an  act  was 
passed  authorizing  the  treasurer  to  compound  with  those 
banks  which  had  not  yet  accepted  the  provisions  of  the 
act  of  1825,53  and  the  following  year  the  treasurer  reported 
that  two  of  the  banks  had  paid  the  back  taxes  and  had 
been  reinvested  with  their  stock,  and  that  a  similar  arrange- 
ment might  be  affected  with  one  or  two  others,  but  that 
the  remainder  of  the  institutions  were  either  insolvent  or 
had  dissolved.54 

During  this  same  session  of  1825  the  legislature  en- 
tered upon  the  new  and  eventful  policy  of  public  improve- 
ments, and,  as  the  attention  of  that  body  was  fully  occupied 
by  this  important  subject,  bank  legislation  languished  for 
several  years.  By  the  act  of  March  12,  1831,  a  tax  of  five 
per  cent,  was  levied  upon  the  dividends  of  banks,  insurance, 
and  bridge  companies.  Five  years  later  this  was  amended 

"Act  of  Feb.  5,  1825. 
"That  of  March  7,  1842. 
MAct  of  March  3,  1834. 
"Ho.  ].,  1835,  P.  565. 


272  FINANCIAL  HISTORY  OF  OHIO  [272 

by  an  act55  providing  that  the  auditor  should  collect  from 
banks  twenty  per  cent,  upon  their  dividends;  but  if  any 
bank  would  agree  not  to  issue  any  bills  smaller  than  $3 
after  July  4,  1836,  nor  smaller  than  f 5  after  July  4,  1837, 
the  auditor  should  collect  from  sucli  bank  only  five  per 
cent,  of  the  dividends.  Most  of  the  banks  accepted  this 
law. 

Banks  had  multiplied  rapidly  in  Ohio  during  the  pre- 
vious years56  under  the  stimulus  brought  about  by  the 
increased  immigration,  the  building  of  the  Ohio  canals,  the 
opening  up  of  large  areas  of  fertile  land,  and  the  increased 
trade. 

Both  the  loans  and  circulation  showed  a  great  expan- 
sion and  inflation,  as  to  which  this  law  offers  ample  testi- 
mony. Between  January  1,  1811,  and  July  1,  1830, 
eighteen  banks  failed,  with  a  combined  capital  of 
$1,911,179.57 

Fairly  complete  statistics  of  banking  can  be  given  for 
the  subsequent  decade,  as  the  banks  were  now  required  to 
make  annual  reports  to  the  state  treasury  department.  The 
following  table  presents  the  salient  facts  for  the  years 
1835-1844 :58 


"March  14,  1836.    cf.  Acts  of  March  13,  1838,  and  Feb.  9,  1839. 

"Among  the  banks  chartered  at  this  time  was  the  Ohio  Life  and  Trust 
Company  (Feb.  12,  1834),  which  later  acted  as  agent  for  the  State  and 
defaulted  in  1857  for  a  considerable  amount  of  public  deposits. 

"Statistics  showing  the  banking  operations  in  detail  are  lacking  for 
this  period.  In  1820  there  were  19  banks  in  the  state  with  capital  of 
$1,697,463,  circulation  of  $1,203,869,  deposits  of  $454,452,  and  specie  of 
$433,612;  one  bank,  with  a  capital  of  $100,000,  did  not  report.  Gallatin, 
Considerations,  pp.  97-105. 

MGov.  Mess.,  1844,  p.  16. 


273]  HISTORY  AND  TAXATION  OF  BANKS 

BANKING   IN  OHIO,   1835-1844    (OOO  OMITTED). 


273 


Year. 
Tan..    18^.. 

Capital. 

$  6,391 
8,370 
9.247 
10,870 
11,332 
10,299 
10,027 
10,508 
(Banks  set 
f 
7.138 
3,46o 

2.125 

Circula- 
tion. 
$5,654 
9,676 
8,327 
7,697 

6,221 
6,885 
7,424 
4,607 

the  laws  a 
ased   to   mz 
1,335 

1,545 
2.181 

Specie. 

$1,007 
2,925 
3,153 
2,312 
2,674 
2,995 
2,361 
1,752 
t  defiance  a 
ike   reports. 
827 
633 

7IO 

Loans. 

$10,071 
17,080 
18,179 
I9,5o6 

17,213 
15,881 
16,030 

13,414 
nd  re- 

7,725 
4,019 
2.841; 

Jan.,    1836  

Jan.,    1837  

May,  1837  «  .    . 

Dec.,  1817.. 

June,     1838  

June,     1839  

Jan.,    1840  

1841  

June,     1842  

June,     i8.il.  . 

Oct..    i&u.. 

In  1836  Ohio  renewed  the  war  against  the  Bank  of 
the  United  States  and  other  banks  chartered  outside  the 
state.  The  federal  charter  of  the  Bank  of  the  United  States 
had  expired  in  1836,  but  a  new  one  had  been  granted  by  the 
state  of  Pennsylvania,  incorporating  it  as  a  state  bank. 
The  preamble  of  the  opening  act59  against  this  bank  states 
that  "whereas  the  stockholders  of  the  Bank  of  the  United 
States  have  been  incorporated,  and  whereas  the  general 
welfare  of  this  state  forbids  the  establishment  within  its 
limits  of  any  branch  of  the  said  bank",  and  then  proceeds 
to  make  it  unlawful  for  any  bank  or  person  in  Ohio  to  act 
as  its  agent,  or  to  circulate  its  notes.  Very  heavy  penalties 
were  provided  for  the  violation  of  any  of  its  provisions. 
This  law  was  repealed  January  26,  1838,  but  the  following 
year  it  was  revived  in  a  modified  form.60  The  new  act 
provided  that  no  bank  incorporated  by  the  laws  of  any 
other  state,  or  by  the  laws  of  the  U.  S.,  was  to  establish  a 
branch  in  Ohio  without  the  consent  of  the  general  as- 
sembly. It  was  further  made  unlawful  for  any  bank  or 
person  to  act  as  agents  of  a  foreign  bank  in  Ohio,  but  the 
penalties  prescribed  were  not  so  heavy  as  in  the  previous 
act. 

"March   14,   1836. 
"Feb.  9,  1839- 


274  FINANCIAL  HISTORY  OF  OHIO  [274 

Nothing  illustrates  the  nature  of  banking  at  this 
period  and  the  power  of  the  banks  so  well  as  the  attempts 
of  the  legislature  to  control  the  issue  and  circulation  of 
unauthorized  bank-notes,  and  the  failure  of  such  legisla- 
tion. In  183861  all  unincorporated  companies  were  for- 
bidden to  issue  notes  without  authorization;  and  incor- 
porated companies  were  forbidden  to  issue  unauthorized 
notes  under  pain  of  losing  their  charters.  The  following 
year  unauthorized  notes  were  defined  so  as  to  include  all 
paper  that  was  intended  to  circulate  as  money.62  That 
such  legislation  was  necessary  is  shown  by  the  growth  of 
various  associations,  such  as  libraries,  orphans'  institutes, 
and  similar  organizations,  which  engaged  in  banking  and 
issued  notes.  The  auditor's  report  in  183963  described  the 
attempt  of  two  of  these  fo  win  recognition  of  their  bank- 
ing rights  from  the  state  by  declaring  a  dividend  and  then 
asking  to  be  taxed  thereon. 

Another  kind  of  unauthorized  issues  against  which 
the  state  valiantly,  though  unsuccessfully,  struggled  was 
small  notes.  In  1838  the  act  of  March  14,  1836,64  was 
repealed,  and  banks  were  authorized  to  issue  small  bills  as 
low  as  $1,  provided  they  maintained  specie  payments.65 
Suspended  banks  were  required  to  resume  specie  payments 
by  July  4,  1838,  if  by  that  time  the  banks  of  New  York 
City,  Philadelphia,  and  Baltimore  had  resumed.  As  these 
banks  all  resumed  during  the  summer,  most  of  the  Ohio 
banks  did  so  also.66  Specie  payments  had  been  suspended 
in  Ohio,  in  common  with  the  rest  of  the  country,  after  the 
panic  of  1837.  The  following  year67  all  bank  notes  under 
$3  were  forbidden  after  July  4,  1839 ;  all  those  under  $5 
and  between  $5  and  $10  after  October  1, 1839.  If  any  bank 
offended  it  was  to  pay  a  fine  of  $50  for  each  unauthorized 

"Feb.  16,  1838. 

"March  18,  1839. 

"Aud.  rep.  of  Dec.  3,  1839. 

"See  ante,  p.  272. 

"March  13,  1838. 

"Stunner,  History  of  Banking  in  the  U.  S.,  p.  292. 

"Act  of  Feb.  9,  1839. 


275]  HISTORY  AND  TAXATION  OF  BANKS  275 

note,  or  lose  its  banking  privileges.  Another  law  in  184068 
showed  how  ineffective  this  legislation  had  been.  Small 
notes  were  once  more  forbidden,  as  were  post  notes  and 
those  payable  elsewhere  than  at  place  of  issue.  All  notes 
were  declared  redeemable  in  specie,  no  broker  was  to  pay 
out  illegal  notes,  and  no  state  officer  was  to  receive  or  pay 
out  notes  under  $5.  This  law  was  successful  in  reducing 
somewhat  the  circulation  of  unauthorized  notes.69 

As  the  rest  of  the  story  of  the  state's  struggle  against 
unauthorized  issues  can  be  told  in  a  few  words,  it  had 
best  be  concluded  in  this  connection.  In  January,  1842, 
there  were  riots  against  the  banks  in  Cincinnati  and  Louis- 
ville, on  account  of  trouble  with  the  circulation.70  On 
January  21,  the  legislature  passed  resolutions  exhorting 
neighboring  states  to  resume  specie  payments  and  pledg- 
ing Ohio  to  do  the  same.  On  February  18,  an  act  was 
passed  to  enforce  the  resumption  of  specie  payments,  stat- 
ing that  banks  not  redeeming  their  notes  should  be  held 
to  have  forfeited  their  charters,  and  forbidding  them  from 
assigning.  On  March  7,  state  officers  were  forbidden,  after 
March  4  of  the  next  year,  to  pay  out  any  note  not  re- 
deemable in  specie  or  demand.  Another  act,  passed  the 
same  day,  showed  that  unauthorized  companies  were  still 
issuing  notes,  for  the  penalty  of  forfeiture  of  charter  is 
prescribed  for  such  acts.  There  was  no  further  legisla- 
tion until  1845,  when  an  act71  was  passed  forbidding  the 
establishment  of  unauthorized  banks,  and  the  issue  of  un- 
authorized bank  notes;  the  prohibition  of  small  notes  under 
$5  was  also  repeated.72  The  following  year  73  the  circula- 
tion of  notes  under  $5,  issued  by  banks  chartered  out 

""Act  of  March  23,  1840. 

"Second  an.  rep.  of  Bank  Commissioners,   1841. 

"Sumner,  History  of  Banking,  p.  400. 

"March  2,  1845. 

"In  1845  the  nomenclature  of  the  Ohio  currency  was  given  as  "yellow 
dog",  "red  cat",  "smooth  money",  "blue  pup"  and  "sick  Indian". 
Miles'  Register,  LXVIII,  272,  quoted  by  Sumner,  History  of  Banking, 
P-  403. 

"Act  of  Jan.  22,  1846. 


27 G  FINANCIAL  HISTORY  OF  OHIO  [276 

of  the  state,  and  of  all  notes  not  received  by  such  bank  on 
deposit,  was  prohibited  in  Ohio.  Two  years  later  another 
act 74  forbade  the  Ohio  banks  to  pay  out  for  circulation  the 
notes  of  banks  of  other  states;  a  penalty  of  one-half  the 
amount  involved  was  provided.  Six  years  later  the  last 
act  in  this  catalogue  of  bad  banking  and  ineffective  legis- 
lation was  passed :  this  was  an  act75  to  prohibit  the  circula- 
tion of  foreign  bank  bills  of  a  less  denomination  than  $10 
after  October  1,  1854. 

REGULATION  OF  THE  BANKS,  1839-1850. 

Meanwhile  the  state  had  taken  the  first  important 
step  in  the  direction  of  a  better  regulation  of  the  banks. 
This  was  done  by  the  bank  commissioner  law  of  February 
25,  1839,76  "of  which  the  banks  have  complained  the  most." 
It  provided  for  three  bank  commissioners  to  visit  and 
examine  each  bank  at  least  once  a  year ;  for  the  publication 
by  each  bank  of  a  monthly  statement  showing  the  true 
situation  and  condition  of  the  bank.  The  circulation  was 
never  to  exceed  three  times  the  specie,  banks  were  not  to 
buy  their  own  notes  at  a  discount,  and  were  fined  twelve 
per  cent,  for  non-redemption.  If  any  bank  refused  to  re- 
deem its  notes  in  gold  or  silver  for  more  than  thirty  days 
in  one  year  it  should  be  closed  and  the  charter  annulled. 

All  these  provisions  are  intended  for  the  security  of  the  public  against 
the  insolvency  of  banks,  and  they  are  such  as  no  bank  ought  to  object 

to Previous  to   the  passage  of   this  law,  the  public  had  not 

means  of  knowing  whether  a  bank  was  worthy  of  credit  or  not,  until  it 
openly  proclaimed  its  insolvency,  and  then,  in  most  cases,  it  was  too 
late  to  secure  any  of  its  assets  for  the  payment  of  its  debts.  The  whole 
operations  of  our  banks  were  to  the  public  as  a  sealed  letter,  until  the 
means  were  provided  in  this  act  to  enable  the  public  to  know  and  judge 
of  their  true  condition.77 

The  first  report  of  the  Bank  Commissioners,78  January, 
1840,  showed  that  half  the  banking  capital  of  the  state  was 

"Feb.  24,  1848. 

"May  i,  1854. 

7sGov.  Mess.,  Exec.  Doc.,  1840,  Doc.  No.  i,  p.  26. 

77Gov.  Mess.,  1840,  ut  supra,  p.  26. 

"Quoted  by  Sumner,  Hist,  of  Banking,  p.  328. 


277]  HISTORY  AND  TAXATION  OF  BANKS  277 

owned  by  non-residents,  and  that  one-third  of  all  the  loans 
were  to  bank  officers  and  directors  as  borrowers  or  en- 
dorsers. "The  banks  distrusted  one  another  and  the  public 
distrusted  them.1'  Nine  institutions  were  mentioned  which 
had  illegal  circulation. 

There  were  now  twenty-three  banks  in  the  state,  of 
which  number  the  charters  of  thirteen  expired  on  January 
1, 1843,  and  of  two  others  in  January,  1844.79  Accordingly 
it  was  now  within  the  power  of  the  legislature  to  prescribe 
the  conditions  under  which  their  charters  should  be  re- 
newed.80 This  was  done  by  the  "act  to  regulate  banking  in 
Ohio",  passed  March  7,  1842.  Heretofore  every  bank  had 
been  chartered  separately,  but  now  for  the  first  time  a 
general  incorporation  act  was  passed,  to  apply  to  all  banks 
alike.  The  most  important  provisions  were  as  follows :  the 
banks  organized  under  this  law  were  not  to  commence 
business  until  all  the  capital  had  been  paid  in  in  specie, 
which  must  be  certified  to  by  the  Bank  Commissioners 
(sec.  4)  ;  no  loan  to  be  made  to  a  director  for  more  than 
half  his  shares,  nor  to  one  person  for  more  than  certain 
specified  amounts  (|8000  in  a  f  100,000  bank,  etc.);  the 
circulation  was  limited  to  the  amount  of  the  capital,  and 
a  reserve  of  33^  per  cent,  in  specie  must  be  kept  (sec.  13)  ; 
the  notes  to  be  countersigned  by  a  state  officer,  who  should 
guard  against  over-issue ;  a  tax  of  one-half  of  one  per  cent, 
on  the  capital,  but  this  might  be  changed  by  the  legislature 
(sec.  20)  ;  the  denominations  of  the  bills  were  to  be  $5,  $10, 
$20,  $50,  and  $100  (sec.  30). 

In  1843  this  act  was  amended,81  chiefly  by  guarding 
against  the  abuse  of  their  powers  on  the  part  of  officers  and 
directors.  At  the  same  time  four  new  banks  were  or- 
ganized under  it,  and  five  old  ones  were  rechartered.  Most 
of  the  banks  in  the  plate,  however,  refused  to  organize 

"Gov.  Mess.,  Exec.  Doc.,  1842,  I,  6. 

*°As  the  governor  said  (Exec.  Doc.,  1840,  Doc.  No.  76,  p.  67)  :  "It  is 
a  question  .  .  .  only  under  what  modifications  and  restrictions  they 
shall  be  permitted  to  live." 

wAct  of  Feb.  21,  1843. 


278  FINANCIAL  HISTORY  OF  OHIO  [278 

under  it,  as  they  claimed  that  its  provisions  were  too  strict, 
and  insisted  upon  a  relaxation.82  On  February  15,  1844, 
three  banks  which  complained  of  the  restrictions  of  this 
law  and  asked  extensions  of  their  old  charters  obtained 
what  they  asked  for,  on  condition  of  assenting  to  individual 
liability  and  keeping  one-third  of  their  circulation  in  specie. 
Immediately  afterwards  three  others  took  the  same  step. 

The  new  banking  law  was  a  great  improvement  upon 
anything  which  had  preceded  it.  As  the  governor,  in  his 
message  of  1844,  said :  "Industry  and  enterprise,  relieved 
from  the  bondage  of  banking  operations,  are  recovering 
their  energies  with  renewed  vigor."  It  was  estimated  that 
the  people  of  the  state  had  lost  by  bad  circulation  since 
1831  one  million  and  four  hundred  thousand  dollars;83  up 
to  1844,  forty-seven  banks  had  failed  in  the  state.84 

In  1845  the  State  Bank  of  Ohio  was  organized.85  A 
number  of  existing  banks,  with  an  aggregate  capital  of 
$6,150,000,  were  to  be  combined  to  form  the  central  bank. 
Each  bank  was  to  report  whether  it  wished  to  be  indepen- 

MA  reference  to  the  table  on  p.  273  shows  that  the  years  1841-1844 
were  very  hard  for  the  banks. 

"Rep.  of  Bank  Commissioners,  1844. 

**In  spite  of  failure  and  financial  disaster  many  people  thought  the 
liberal  issue  of  bank  notes  essential  to  the  prosperity  of  the  country,  and 
favored  liberal  and  even  loose  legislation  on  the  subject.  As  the  governor 
wrote  in  his  message  in  1842 :  "The  error  which  prevails  on  this  subject 
has  its  origin  in  the  common,  vague  impression  that  we  are  dependent  on 
the  bank  system  for  the  supply  of  a  sufficient  quantity  of  the  circulating 
medium,  and  that,  without  bank  paper,  commerce  would  not  flourish, 
business  would  stagnate,  and  the  country  cease  to  advance  in  prosperity 
and  improvement.  This  fallacy  is  the  chief  cause  of  that  superstitious 
attachment  to  the  paper  system  which  with  some  has  become  idolatry." 
At  the  sessions  of  1835-6,  1836-7,  1838-9,  and  1840-1,  petitions  for  more 
banks  flooded  the  legislature  in  unequalled  numbers,  especially  after  the 
crisis  of  1837.  "The  delusion  seemed  to  hold  a  portion  of  the  people 
spell-bound  with  the  idea  that  an  addition  to  the  bank  issues  and  bank 
loans,  already  existing  to  an  alarming  excess,  could  relieve  the  country. 
And  the  legislature  was  even  censured  as  refusing  to  do  anything  for  the 
good  of  the  country  because  the  insatiable  demand  for  banks  was  resisted." 
Gov.  Mess.  Exec.  Doc.,  1844,  Doc.  No.  i,  p.  n. 

"Act  of  Feb.  24,  1845. 


279]  HISTORY  AND  TAXATION  OF  BANKS  279 

dent  or  a  branch  of  the  State  Bank.  When  seven  banks  sig- 
nified their  intention  to  become  branches,  they  should  each 
elect  a  member  of  the  Board  of  Control,  which  in  turn 
should  elect  the  president.  This  board  had  visitorial 
powers,  and  control  over  the  circulation.  A  board  of  Bank 
Commissioners  was  also  provided  for,  consisting,  after  the 
first  year,  of  the  auditor,  treasurer,  and  secretary  of  state. 
Provision  was  made  for  a  sinking  fund  of  ten  per  cent,  of 
the  circulation.  Notes  must  be  redeemed  in  specie. 

By  the  same  act  the  circulation  of  the  independent 
banks  was  based  upon  a  deposit  of  Ohio  or  United  States 
bonds  with  the  state  treasurer,  to  the  amount  of  the  cap- 
ital; notes  might  be  issued  up  to  the  market  value  of  the 
bonds;  a  reserve  of  thirty  per  cent,  must  be  kept  in  specie. 
Stockholders  were  made  liable  for  not  more  than  three- 
fifths  of  the  capital,  and  provision  was  made  for  annual 
examination  of  the  banks.  The  charters  of  both  the  state 
and  the  independent  banks  were  to  expire  in  1866. 

The  new  banking  law  was  deliberately  enacted,  after 
a  careful  examination  of  other  systems,  and  was  accepted 
by  the  banks  and  the  people  alike  as  a  solution  of  the 
former  problems.  By  the  end  of  the  year  twenty-one  banks 
had  organized  and  were  doing  business  under  this  act. 
"And  already",  wrote  the  governor  in  January,  1846, 

the  people  of  Ohio  begin  to  feel  the  influence  of  this  system  in  the  restora- 
tion of  confidence,  the  revival  of  business,  the  increase  of  the  wages  of 
labor,  and  the  rising  prosperity  of  the  state." 

A  year  later  there  were  twenty-six  banks  in  operation 
under  the  new  system,  of  which  nine  were  independent 
and  seventeen  branches  of  the  State  Bank.87  In  1848  the 
State  Bank  had  thirty-seven  branches,  and  there  were  also 
eleven  independent  banks,  and  seven  old  banks. 

There  were  now  three  different  kinds  of  banks  in 
Ohio,  organized  under  different  laws,  but  all  of  them  under 
restrictions  in  the  use  of  their  banking  powers.  The  fol- 
lowing table  shows  the  amount  of  their  circulation  and 

"Gov.  Mess.,  Exec.  Doc.,  1845,  I,  5- 
"Gov  Mess.,  Exec.  Doc.,  1846,  I,  10. 


280 


FINANCIAL  HISTORY  OF  OHIO 


[280 


capital  on  November  1,  1846,  anil  the  amount  of  taxes  paid 
by  them  during  the  preceding  year  :88 


'E 
O 

Circulation 

Sij 

&£ 
II 

-  U, 

.sas 

2'S. 
•o  u  a 

£  u  ° 
S  x  E 

OH  J2  n) 

Nine  Independent  Banks  

$176,170 

$    612,64^ 

$  3  278 

I  O4 

State  Bank  and  17  Branches.. 
Eight  Old  Banks  

1,496,757 
3,953,750 

2,655,346 

2.406,0  $8 

9,119 
16,272 

•77 

4T 

Total  (34  banks)  

$5,826,677 

$=;,674,76Q 

$28,669 

C-> 

BANK  TAXATION. 

We  have  now  reached  the  point  where  for  the  first 
time  an  effort  was  made  to  tax  banks  like  other  property. 
Heretofore  they  had  been  treated  with  great  partiality  by 
the  legislature,  in  the  belief  that  the  prosperity  of  the  state 
depended  upon  the  development  of  banking  institutions  and 
that  their  growth  ought  consequently  not  be  interferred 
with  by  burdening  them  with  taxes.  The  favoritism  dis- 
played to  them  and  other  interests  had  in  fact  led  to  a 
strong  reaction  against  this  legislative  policy,  and  brought 
about  the  passage  of  the  tax  law  of  1846,  which  had  as  its 
avowed  purpose  the  equal  taxation  of  all  property.89  It 
may  be  well,  however,  at  this  point,  before  taking  up  this 
act,  to  review  briefly  the  history  of  bank  taxation  in  the 
state  up  to  this  time. 

The  first  law  imposing  a  tax  on  banks  in  Ohio  was, 
as  we  have  seen,  the  act  of  February  8,  1815,  which  levied 
a  tax  of  4  per  cent,  on  dividends;  it  further  provided  that 
if  any  banks  failed  to  report  their  dividends  the  auditor  was 
to  levy  a  tax  of  1  per  cent,  on  their  nominal  capital. 
Hardly  had  this  act  been  put  in  operation,  however,  when 
the  new  legislature  reversed  the  policy  of  taxation,  and 
enacted  the  law  of  February  23,  1816,  according  to  which 
all  banks  accepting  its  provisions  were  to  be  exempt  from 

**Aud.  rep.,  Dec.  16,   1846. 

""See  Chapter  IV,  on  The  General  Property  Tax,  p.  214. 


281]  HISTORY  AND  TAXATION  OF  BANKS  281 

taxation.  In  return  they  were  to  set  aside  for  the  state 
one-twenty-fifth  of  their  capital  stock,  to  be  paid  for  out 
of  the  profits  on  this  stock  in  twenty-five  years.  Such 
banks  as  did  not  avail  themselves  of  this  act,  were  still 
taxed  under  the  law  of  1815.  The  attempt  to  tax  the 
branches  of  the  Second  Bank  of  the  United  States  in  1819 
belongs  less  to  a  history  of  taxation  of  banks  in  Ohio  than 
to  that  of  an  effort  to  oust  a  rival  institution  from  the 
state  by  means  of  the  taxing  power.  It  had,  obviously,  no 
effect  on  the  status  of  other  banks.  The  act  of  March  12, 
1831,  levied  a  tax  of  5  per  cent,  on  the  dividends  of 
banks,  insurance,  and  bridge  companies.  The  revenues 
from  this  source  increased  steadily  until  they  readied 
almost  $75,000  in  1836,  after  which  they  fell  off  again  as  a 
result  of  the  panic  of  1837.  By  1842  those  from  the  tax  on 
bank  dividends  seem  to  have  practically  disappeared.90 

By  thefcict  of  March  2,  1846,  the  principles  of  the 
general  property  tax  were  generally  applied  to  the  prop- 
erty and  industries  within  the  state,  though  even  yet  ex- 
ceptions were  made  in  particular  cases.  Banks,  merchants, 
manufacturers,  and  other  corporations  were  dealt  with  by 
special  rules.  That  relating  to  banks  imposed  a  tax  of 
six  per  cent,  on  their  gross  profits.  But  as  many  of  the 
existing  banks,  through  their  charters  or  by  reason  of 
previous  legislation,  were  exempt  from  the  operation  of 
this  act,  it  failed  to  bring  about  uniformity  in  the  taxa- 
tion of  banks.  The  percentage  of  taxes  paid  on  their 
average  capital  for  the  year  1846  by  the  different  classes 
of  banks  was  as  follows:91  independent  banks,  $1.04;  State 
Bank,  76  cents;  old  banks,  41  cents.  As  the  rate  on  real 
and  personal  property  for  the  same  year  was  63  cents,  it 
was  clear  that  the  "new"  banks  were  taxed  more  heavily 
and  the  "old"  banks  less  heavily  than  other  property  under 
the  general  property  tax.  The  reason  for  the  more  lenient 
treatment  of  the  old  banks  was  that  under  the  ace  of 
March  14,  1836,  to  prohibit  the  circulation  of  small  bills, 

*°And.  rep.,  Dec.  6,  1842. 
"'See  table  on  p.  280. 


282  FINANCIAL  HISTORY  OF  OHIO  [282 

a  proposition  was  made  by  the  state  to  these  banks,  to 
release  them  from  the  liability  to  pay  more  than  five  per 
cent,  on  their  dividends,  upon  the  condition  that  they 
would  relinquish  the  right  to  issue  small  bills.  This  propo- 
sition was  accepted  by  most  of  the  old  banks,  and  tliey 
were  consequently  exempted  from  the  payment  of  more 
than  five  per  cent,  upon  their  dividends.92 

In  1850  an  act  was  passed93  providing  that  all  banks 
should  be  taxed  alike  on  their  capital  and  surplus  at  the 
rate  of  general  state  taxation,  and  the  banks  were  asked 
to  accept  this  method  instead  of  the  other  forms  of  taxa- 
tion to  which  they  were  entitled  by  their  charters  or 
through  earlier  laws.  By  December  of  that  year  only  five 
banks  had  accepted  the  provisions  of  this  act.94 

This  same  year  saw  the  meeting  of  the  constitutional 
convention  and  the  following  one  the  adoption  of  a  new 
constitution.  In  this  the  principle  of  equality  in  taxation 
was  affirmed,  and  all  discrimination  between  different 
forms  of  property  forbidden.  Section  2  of  Article  XII 
required  that  "laws  shall  be  passed,  taxing  by  a  uniform 
rule,  all  moneys,  credits,  investments  in  bonds,  stocks, 
joint  stock  companies,  or  otherwise".  But  section  3  was 
directly  specifically  against  the  banks  and  left  no  doubt 
whatever  as  to  the  intentions  of  the  framers  of  the  consti- 
tution. They  were  on  the  whole  hostile  to  the  moneyed 
interests  and  corporations  in  the  state ;  they  were  afraid  of 
their  power  in  gaining  exemptions  and  favors  for  them- 
selves; and  they  distrusted  the  legislature.  Consequently 
they  insisted  specifically  that  banks  must  be  taxed  like 
other  industries  or  individuals.  They  forbade  the  granting 
of  special  privileges  or  exemptions  of  any  sort,  and  they 
incorporated  these  provisions  in  the  organic  law  of  the 
state  itself.  Section  3  read  as  follows: 

The  General  Assembly  shall  provide  by  law  for  taxing  the  notes 
and  bills  discounted  or  purchased,  moneys  loaned,  and  all  other  property, 
effects  or  dues,  of  any  description,  without  deduction,  of  all  banks  now 


"Aud.   rep.,  Dec.  16,  1846. 
"Act  of  March  23,  1850. 
**Aud.   rep.,   1850. 


283]  HISTORY  AND  TAXATION  OF  BANKS  283 

existing  or  hereafter  created,  and  all  bankers,  so  that  all  property  em- 
ployed in  banking  shall  always  bear  a  burden  of  taxation  equal  to  that 
imposed  on  the  property  of  individuals.*8 

It  remained  now  to  carry  out  by  legislation  the  man- 
dates of  the  constitution,  and  the  effort  to  do  this  led  to  a 
protracted  struggle  between  the  legislature  and  the  banks, 
which  continued  until  the  reorganization  of  the  banking 
system  in  the  sixties. 

STRUGGLE  WITH  THE  BANKS  OVER  TAXATION. 

The  efforts  to  enforce  the  principles  of  the  constitution 
as  to  equality  of  taxation  and  the  abolition  of  special 
privilege  led  to  the  passage  of  a  great  deal  of  banking 
legislation,  much  of  it  decidedly  hostile  to  the  banks,  and 
all  actuated  by  the  determination  to  restrict  the  abuses 
which  had  characterized  the  two  previous  decades.  Before 
taking  up  the  account  of  the  struggle  over  taxation,  we 
must  note  a  new  banking  act  for  the  organization  and  note 
issue  of  future  banks.  This  was  the  "free  banking  act" 
of  1851,96  which  opened  the  business  of  banking  to  any 
association  of  three  persons  complying  with  the  provisions 
of  the  law.  Up  to  1842  banks  had  been  chartered  by  special 
acts  of  the  legislature,  and  the  same  evils  had  been  ob- 
servable in  Ohio  that  led  in  New  York  and  other  states  to 
similar  free  banking  measures. 

The  minimum  capital  was  fixed  at  $25,000.  A  bank 
might  begin  business  when  sixty  per  cent,  of  the  capital 
stock  had  been  paid  in.  The  notes  were  to  be  secured  by 
the  deposit  with  the  state  auditor  of  bonds  of  the  United 
States  or  of  Ohio,  and  notes  might  be  issued  to  the  amount 
of  bonds  thus  deposited,  but  in  no  case  above  their  market 

""Other  sections  of  the  constitution  dealt  with  the  organization  and 
other  features  of  banks  and  other  corporations,  but  as  these  relate  to 
the  history  of  banking  rather  than  to  that  of  the  taxation  of  banks,  we 
shall  not  consider  them  here,  except  to  cite  section  7  of  Art.  XIII,  which 
is  indicative  of  the  general  attitude  towards  banks  at  this  time :  "No  act 
of  this  general  assembly,  authorizing  associations  with  banking  powers, 
shall  take  effect  until  it  shall  be  submitted  to  the  people,  at  the  general 
election  next  succeeding  the  passage  thereof,  and  be  approved  by  a 
majority  of  all  the  electors,  voting  at  such  election." 

"Act  of  March  21,  1851. 


284  FINANCIAL  HISTORY  OF  OHIO  [284 

value  (or  par  value  if  the  market  value  was  above  par), 
nor  in  excess  of  three  times  the  amount  of  the  paid  in 
capital.  A  reserve  of  thirty  per  cent,  of  the  outstanding 
circulation  must  be  kept  on  hand  by  each  bank,  of  which 
one-half  must  be  in  coin.  The  denominations  of  the  notes 
were  fixed  at  1,  2,  3,  5,  10,  50,  and  100  dollars.  Thirteen 
banks  organized  under  the  provisions  of  this  law.97 

There  were  now  four  systems  of  banks  in  Ohio:  the 
"old"  banks  (those  chartered  before  1845),  the  State  Bank 
with  its  branches  and  the  independent  banks  (both  char- 
tered under  the  act  of  1845),  and  the  free  banks  (chartered 
by  the  act  of  1851 ) .  The  banking  capital  of  the  state  was 
distributed  among  them  in  1854  as  follows: 

Old  banks $1,550,000 

State  Bank  and  branches 4,100,000 

Independent  banks 720,000 

Free  banks 695,000 

Another  act98  was  passed  on  the  same  day  that  the 
free  banking  law  was  enacted,  providing  that  banks  should 
be  taxed  on  their  capital  and  surplus  at  the  same  rate  that 
other  property  in  the  state  was  taxed,  in  lieu  of  the  old 
taxes  on  profits  or  dividends.  The  following  year  a 
stronger  act  was  passed,  to  carry  out  the  constitutional 
provisions  for  uniform  taxation  of  all  property,  ordering 
that  all  banks  must  return  to  the  auditor  ( 1 )  the  average 
amount  of  notes  and  bills  discounted  during  the  past 
year,  and  (2)  the  average  amount  of  all  other  loans.99 
These  laws  materially  increased  the  taxes  on  the  older 
banks  and  were  bitterly  resisted  by  them.  A  struggle  now 
began  between  the  banks  and  the  legislature  over  the  ques- 
tion of  the  right  to  tax  them  in  this  way,  and  continued 
through  the  rest  of  the  decade.  The  banks  succeeded  in 
breaking  down  these  laws  in  the  courts,  on  the  ground  that 
they  violated  the  contracts  made  with  the  banks  when  they 
were  chartered,  or  in  the  case  of  the  "old"  banks  when  they 
acceded  to  the  conditions  of  the  act  of  March  14,  1836, 

"Aud.  rep.,  Feb.  12,  1853. 

"Act  of  March  21,  1851.    This  was  simply  a  repetition  of  the  act  of 
March  23,  1850. 

"Act  of  April  13,  1852.    Swan's  Statutes,  1854,  p.  905. 


285]  HISTORY  AND  TAXATION  OF  BANKS  285 

prohibiting  the  circulation  of  small  bills.100  The  old  banks 
were  tin^y  compelled  to  yield,  however,  is  fieir  charters 
ran  out  and  -hey  c^uld  obtain  a  renewal  of  them  only  by 
met  ring  the  new  cou'i'iions. 

The  attitude  of  the  banks  is  graphically  set  forth  in 
a  report  by  the  auditor  of  state,  from  which  we  quote  at 
length:101 

At  the  date  of  making  this  report,  but  few  of  the  Banks  of  Ohio 
have  paid  the  taxes  assessed  against  them  under  the  provisions  of  the 
act  of  April  13,  1852.  This  delinquency  is  not  a  matter  of  accident,  but 
is  attended  by  circumstances  which  betray  the  existence  of  a  conspiracy 
to  trample  upon,  and  override  the  very  authority  which  gave  to  the  con- 
spirators their  corporate  existence.  In  numerous  instances,  the  officers  of 
banks  by  closing  their  vaults  upon  the  treasurer,  have  taken  from  him 
all  opportunity  of  making  distress  without  first  forcing  an  entrance.  A 
want  of  clearness  in  the  law  respecting  the  extent  to  which  the  powers 
of  a  treasurer  reach,  has  been  seized  upon  as  a  ready  and  successful 
means  of  intimidating  many  well  disposed  officers  from  exercising  the 
rights  which  it  is  believed  were  intended  to  be  conferred  by  existing 
statutes.  In  other  instances,  all  the  valuable  effects  of  the  banks  have 
been  taken  from  the  banking  house,  and  removed  to  some  unknown  place 
of  concealment.  By  these,  and  other  means  involving,  in  some  cases,  the 
bodily  peril  of  the  treasurers,  the  collection  of  the  taxes  has  been  success- 
fully defeated. 

In  order  to  compel  the  payment  of  their  taxes  the 
auditor  suggested  that  the  accruing  interest  on  the  bonds 
deposited  with  the  state  officers  by  the  "free"  and  the 
"independent"  banks  to  secure  their  circulation  be  retained 
to  an  amount  sufficient  to  pay  the  delinquent  taxes.  The 
legislature  did  not  follow  the  suggestion  of  the  auditor, 
but  instead  passed  a  drastic  act,  known  as  the  "crow-bar'' 
law,  providing  for  the  seizure  of  the  property  of  delinquent 
banks.102  It  was  entitled 

an  act  to  enforce  the  collection  of  taxes  which  now  are,  or  may  hereafter 
be  due  from  banks  and  other  corporations,  from  bankers,  brokers,  and 
stock  jobbers,  and  from  the  agents  of  foreign  corporations,  and  to  pro- 
tect county  treasurers  and  other  officers  charged  with  the  collection  of 
the  public  revenue  in  the  performance  of  their  duties. 

100i6  Howard,  369.     Quoted  by   Sumner,  History  of  Banking  in  the 
U.  S.,  p.  442.     For  the  provisions  of  the  law  of  1836,  see  above,  p.  272. 
mAud.   rep.,   Feb.    12,    1853. 
103Act  of  March  14,  1853.     Swan's  Statutes,  1854.  p.  928. 


286  FINANCIAL  HISTORY  OF  OHIO  [286 

The  act  provided  that  the  county  treasurer  should 
demand  taxes  then  unpaid,  or  unpaid  on  December  21  of 
any  year,  assessed  under  the  act  of  April  13,  1852,  of  all 
banks,  brokers,  and  stock-jobbers,  with  five  per  cent,  pen- 
alty. If  the  taxes  were  not  paid  in  five  days,  then  the 
coin  and  property  at  the  office  might  be  seized,  and  sold 
at  public  auction.  But  the  bank  might  get  back  it?  prop- 
erty by  paying  the  taxes  and  penalty.  The  state  auditor 
might  do  the  same  for  companies  doing  business  in  more 
than  one  county.  Sales  or  transfers  of  coin  or  property 
for  the  purpose  of  evading  the  tax  were  declared  to  be 
void;  and  the  concealment  of  coin,  securities,  etc.,  for  the 
purpose  of  avoiding  the  tax,  was  declared  a  misdemeanor, 
punishable  by  a  fine  of  $1000,  or  imprisonment  in  the 
county  jail,  or  both. 

THE  CRISES  OF  1854  AND  1857  AND  CONDITION  OF  THE  BANKS. 

In  1854  there  was  a  bank  crisis  in  Ohio  and  the  neigh- 
boring states.  A  heavy  run  commenced  in  May  upon  the 
Ohio  banks  for  coin,  and  continued  for  sixty  days  before 
any  bank  suspended.  "A  crisis  then  showed  itself  in  the 
whole  monetary  operations  of  the  western  country."103 
The  notes  of  many  banks,  in  Ohio  fell  to  a  discount  and  the 
banks  suspended.  The  Ohio  valley  had  been  the  scene  of 
extensive  and  rapid  railroad  building,  which  was  checked 
by  the  discovery  of  fraudulent  practices  in  the  issue  of 
stock.104  A  very  great  reduction  of  bank  circulation  took 
place,  especially  in  the  states  of  the  Ohio  valley.  The 
bonds  deposited  with  the  state  auditor  declined  so  in  value 
as  to  afford  insufficient  security  for  the  note  circulation 
of  the  free  banks.  The  notes  of  the  old  banks,  for  whose 
safety  no  special  provision  was  made,  became  almost 
valueless. 

In  1857  a  more  general  financial  crisis  occurred 
throughout  the  country.  This  resulted  largely  from  specu- 
lation and  from  the  undue  expansion  of  credit.  The  in- 

10*Aud.  rep.,  quoted  by  Sumner,  Hist,  of  Banking  in  the  U.  S.,  p.  444. 
1MIbid.,  p.  424. 


287]  HISTORY  AND  TAXATION  OF  BANKS  287 

flux  of  gold  resulting  from  the  California  and  Australian 
discoveries  in  1848  and  1851  greatly  augmented  the 
amount  of  money  in  circulation,  and  this  was  still  further 
increased  by  a  large  expansion  of  credit  currency.  Be- 
tween 1848  and  1857  the  increase  in  the  amount  of  coin 
and  of  bank  notes  in  circulation  was  as  follows:105 

COIN   AND  BANK   NOTES   IN  THE  UNITED  STATES. 

Coin.  Bank  Notes. 

1848 $126,753,027  $128,506,041 

1857 276, 100,442  214,778,222 

Increase $149,367,418  $  86,272,181 

There  were  over  1400  banks  in  the  United  States,  of 
which  54  were  in  Ohio.  The  following  table  shows  their 
condition  for  August  and  November,  1857;  while  their 
position  was  fairly  strong  in  the  former  month  it  had  been 
materially  strengthened  by  November.106 

OHIO   BANKS   IN    1857. 
LIABILITIES.  RESOURCES. 

Circula-  Deposits.  Specie.           Other  Discounts, 

tion.  cash  res.  bonds,  etc. 

Aug.  3 $8,132,305  $5,155,031  $1,726,277  $3,517,230  $15,829,751 

Nov.    2 7,637,955  3,738,652  1,616,255  3,022,552  14,639,945 

Probably  the  financial  readjustment  and  liquidation 
which  had  occurred  three  years  previously,  and  perhaps 
also  the  restrictive  legislation  of  the  past  decade,  had 
put  the  Ohio  banks  in  a  better  position  to  weather  the 
storm  than  those  of  the  eastern  states.107  One  of  the  few 
banks  to  fail  was  the  Ohio  Life  Insurance  and  Trust  Com- 
pany, the  strongest  single  bank  in  the  state,  which  went 
down  on  August  24,  1857.  This  failure  was  entirely  unex- 
pected and  was  due  immediately  to  the  speculation  and  de- 
falcation of  the  New  York  agent.  The  bank  was  unable  to 

""Message  of  Gov.  Chase,  Jan.  4,  1858.    Exec.  Doc.,  1857,  I,  351,  353. 

™Ibid.,  p.  354- 

I07The  suspension  of  specie  payments  was  general  except  in  the  Ohio 
valley,  in  South  Carolina,  at  New  Orleans,  and  by  the  Chemical  Bank  in 
New  York  City.  Sumner,  ut  supra,  p.  427. 


288  FINANCIAL  HISTORY  OF  OHIO  [288 

withstand  this  shock,  however,  for  the  more  fundamental 
reason  that  it  had  advanced  loans,  probably  to  the  amount 
of  five  million  dollars,  for  railroad  building,  upon  which 
it  could  not  realize  in  its  hour  of  need.  The  governor's 
messages  and  auditor's  reports  for  this  period  are  full  of 
adverse  criticisms  of  prevailing  banking  methods,  and 
earnest  in  their  advocacy  of  a  coin  currency.108 

Some  of  the  worst  banking  practices  wrere  carried  on, 
not  by  the  legally  authorized  banks  of  issue,  but  by  private 
bankers ;  the  Ohio  Life  Insurance  and  Trust  Company  had 
probably  been  involved  in  these  practices,  the  disastrous 
effects  of  which  were  first  apparent  upon  its  failure.  Many 
of  these  bankers  borrowed  notes  from  banks  outside  of  the 
state,  at  low  rates  of  interest,  which  they  put  into  circula- 
tion in  Ohio  and  redeemed  when  they  returned  to  the  issu- 
ing bank.  The  effect  of  these  arangements  was  to  introduce 
into  the  state  a  mass  of  foreign  bank  paper  which  expelled 
from  circulation  not  only  nearly  all  the  coin,  but  also 
nearly  all  the  notes  of  the  Ohio  banks,  and  exposed  the 
community  to  great  inconvenience  and  loss.  So  real  wras 
the  evil  that  Governor  Chase  urged  an  amendment  to  the 
act  of  February  24,  1848,  relating  to  the  circulation  of 
unauthorized  bank  paper,  in  order  to  stop  it.109 

By  this  time  the  charters   of  the  "old"   banks  had 

"'Especially  interesting  are  the  statements  of  S.  P.  Chase,  who  became 
governor  of  Ohio  on  Jan.  i,  1855.  In  his  inaugural  message  he  writes, 
"the  best  possible  currency,  in  my  judgment,  would  be  a  currency  of  coin, 
admitting  the  use  of  large  notes  only  for  the  convenience  of  commerce." 
In  view  of  his  later  official  utterances  and  actions  as  Secretary  of  the 
Treasury,  his  earlier  views,  of  which  this  is  only  one  example,  are  of 
particular  interest.  Exec.  Doc.,  1854,  I,  4;  1857,  I,  357. 

109Gov.  Mess.,  Jan.  4,  1858.  Exec.  Doc.,  1857,  I,  357.  In  1859,  it  was 
estimated  that  the  issues  of  foreign  banks,  then  in  the  hands  of  the  people 
of  Ohio,  were  equal  to  the  issues  of  the  Ohio  banks,  or  about  eight  and 
a  half  million  dollars.  "Of  this  sum  a  very  considerable  portion  consists 
of  the  issues  of  banks  which  have  suspended  specie  payments,  embracing 
the  bank  of  Pennsylvania,  Maryland,  Virginia,  Missouri,  and  parts  of 
the  issues  of  other  states.  All  such  issues  have  depreciated  in  the  hands 
of  the  people  of  Ohio,  at  least  ten  per  cent.,  amounting  in  the  aggregate 
to  several  hundred  thousand  dollars."  Gov.  Mess.  Exec.  Doc.,  1860.  I,  549. 


289] 


HISTORY  AND  TAXATION  OF  BANKS 


289 


expired  and  they  had  either  been  wound  up  or  had  re- 
organized as  "free"  banks.  There  were  now  consequently 
only  three  classes  of  banks  in  Ohio,  whose  relative  im- 
portance, character  of  business,  and  financial  stability  are 
shown  in  the  following  table:110 


CONDITION  OF  OHIO  BANKS,  AUG.   3,    1857. 

8  Indpt.  10  Free 

Resources                                                   Banks  Banks 

Specie $    153,989  $    157,516 

Other  cash  res 438,397  529,007 

Bills  discounted,  state  and  U.  S.  bonds 

and  other  res 2,589,997  2,504,798 


36  State 
Branches 
$1,414,772 
2,609,826 

10,734.955 


Total     3,172,384 

8  Indpt. 
Liabilities  Banks 

Circulation    $   707,700 

Due  to  banks  and  Indpt.  Treasury...    1,009,373 
Cap.  stock  and  other  liabilities 1,472,265 


3,191,320        14,759,553 


10  Free 
Banks 
$   853,265 
1,057,711 
1,280,345 


36  State 
Branches 

$6,571,340 
3,089,948 
5,098,265 


Total 3,172,384 


3,191,320        14,759,553 


RENEWED   STRUGGLE   OVER   TAXATION. 

After  the  failure  of  the  savage  act  of  March  14,  1853, 
to  attain  its  purpose,  there  was  evidently  a  sort  of  tacit 
compromise  effected  between  the  banks  and  the  legislature, 
for  in  1856111  a  clumsy  act  was  passed  which  taxed  the 
banks  on  their  business  instead  of  their  property,  although 
it  endeavored  to  secure  the  results  of  the  latter  method. 
The  important  provisions  of  the  act  were  as  follows :  Every 
bank  must  furnish  the  assessor  with  two  statements:  the 
first  of  the  average  amount  of  notes  and  bills  discounted, 
moneys  loaned,  and  all  other  property;  the  second  of  the 
capital,  the  undivided  profits,  and  the  amount  of  time 
deposits — these  three  added  together  shall  be  deemed  the 
property  employed  in  banking.  The  county  auditor  shall 
enter  the  first  statement  on  the  duplicate,  and  shall  charge 

118Gov.  Mess.,  Jan.  4,  1858.    Exec.  Doc.,  1857,  I,  354. 
"'April  i,  1856.    53  O.  L.,  51. 


290  FINANCIAL  HISTORY  OF  OHIO  [290 

thereon  such  rates  of  taxes  as  will  produce  the  same  sum 
as  would  be  produced  by  charging  on  the  property  em- 
braced in  the  second  statement  the  average  rates  of  taxa- 
tion on  the  property  of  individuals  for  state  and  local  pur- 
poses. 

The  rule  thus  laid  down  was  very  inconvenient  in 
practical  application,  and  afforded  an  opportunity  for 
withdrawing  a  considerable  amount  of  bank  property  from 
actual  taxation,  of  which  the  banks  were  quick  to  take 
advantage.112  The  constitutional  requirement  that  prop- 
erty employed  in  banking  should  be  assessed  equally  with 
other  property  was  thus  set  at  naught,  and  it  seemed  as 
though  the  old  policy  of  favoritism  was  to  be  revived. 

A  week  later  another  act,113  known  as  "Kelley's  Bank 
Tax  Law",  was  passed,  providing  for  the  taxation  of  those 
banks  which  had  been  chartered  under  the  act  of  February 
24,  1845.  These  "independent"  banks  and  the  State  Bank 
and  its  branches  must  be  taxed,  according  to  their  charters, 
on  their  profits ;  but  this  act  provided  for  a  different  method 
in  the  case  of  those  banks  which  consented  to  it.  These 
banks  were  to  furnish  the  assessor  with  a  statement  of 
their  capital,  surplus,  and  undivided  profits;  these  were 
to  be  placed  on  the  duplicate  and  taxed  like  other  personal 
property;  that  portion  of  their  capital,  etc.,  invested  in 
real  estate  already  taxed  was  to  be  deducted.  "Under  this 
system,  for  two  years,  the  banks  were  taxed  without  any 
serious  objection  on  their  part."114 

During  the  fall  elections  of  1856  the  pro-bank  party 
came  into  power  in  the  legislature,  and  the  next  session 
carried  out  a  peace  policy  in  the  effort  to  get  the  banks 
to  submit  to  taxation  on  their  property  at  the  general  prop- 
erty rate  for  the  state.  First  the  "crow-bar"  tax  law  of 
March  14,  1853,  was  repealed  ;115  next  it  was  provided  that 
those  banks  which  accepted  the  tax  provisions  of  the  act 
of  March  23,  1850,  should  make  returns  to  the  county 

112Gov.  Mess.  Exec.  Doc.,  1857,  I,  370. 

113Act  of  April  8,  1856. 

U4Aud.  rep.,  1859. 

mBy  act  of  Feb.  26,  1857. 


291]  HISTORY  AND  TAXATION  OF  BANKS  291 

auditor  and  not  to  the  state  auditor,  and  should  be  taxed 
in  the  county  in  which  they  were  doing  business.116  A 
week  later  a  comprehensive  law  was  passed  re-incorporat- 
ing the  Bank  of  Ohio  and  its  branches.117  The  circulation 
was  to  b10  graduated  According  to  the  amount  of  capita! 
stock  paid  in  (about  one  and  one-half  times  the  capital 
on  the  average) ;  provision  was  made  for  a  ten  per  cent, 
safety  fund ;  and  a  reserve  equal  to  thirty  per  cent,  of  the 
circulation  must  be  kept,  of  which  at  least  half  must  be 
specie.118 

But  the  constitution  provided  that  "no  act  of  the 
General  Assembly,  authorizing  associations  with  banking 
powers,  shall  take  effect  until  it  shall  be  submitted  to  the 
people,  at  the  general  election  next  succeeding  the  passage 
thereof,  to  be  approved  by  a  majority  of  all  the  electors 
voting  at  such  election."  Accordingly  this  act  was  sub- 
mitted to  the  people  for  their  approval  at  the  election  on 
the  second  Tuesday  in  October,  1857,  but  failed  to  become 
law.119  At  the  same  time  an  amendment  to  the  constitu- 
tion, to  tax  banks  separately  and  on  different  principles 
from  the  property  of  individuals,  was  submitted  to  popular 
referendum.  It  was  worded,  "Bank  and  individual  taxa- 
tion equal — yes  [or  no]".  This  seems  like  a  shrewd  fram- 
ing of  the  question  for  the  purpose  of  defeating  it,  and 
defeated  it  was. 

This  same  election  saw  the  victory  also  of  the  radical 
anti-bank  party,  and  in  the  following  session  they  sig- 
nalized their  return  to  power  by  the  virtual  re-enactment 
of  the  drastic  act  of  March  14,  1853.  The  new  law  was 
entitled,  "an  act  to  tax  the  property  of  Banks  and  Bankers, 
so  as  to  require  all  property  employed  in  banking  to  bear  a 
burden  of  taxation  equal  to  that  imposed  on  the  property 
of  other  persons.120  The  officers  of  every  bank  were  re- 

JWAct  of  April  8,  1857. 
117 Act  of  April  14,  1857. 

"'On  Sept.  30,  one  week  before  the  election,  the  State  Bank  and  its 
branches  resumed  specie  payments. 
™Exec,  Doc.,  1856,  I,  438. 
12*Act  of  April  12,  1858. 


292  FINANCIAL  HISTORY  OF  OHIO  [292 

quired  under  oath  to  return  annually  to  the  county  auditor 
the  average  amount  of  notes  and  bills  discounted,  and  the 
average  amount  of  all  other  moneys,  effects  and  dues  of 
every  description  (deducting,  however,  the  cash  reserve). 
If  taxes  assessed  under  the  act  of  April  13,  1852,  were 
still  unpaid  the  county  treasurer  was  to  demand  them  by 
leaving  a  written  notice  and  if  they  were  not  then  paid,  to- 
gether with  a  five  per  cent,  penalty,  in  five  days,  he  was 
authorized  to  seize  the  coin,  securities,  etc.,  of  the  bank; 
and  to  sell  the  same  ten  days  after  advertising  them  for 
sale.  The  other  provisions  of  the  earlier  act  were  also 
re-enacted  almost  verbatim. 

This  was  almost  the  last  act  in  the  struggle  between 
the  banks  and  the  state. 

The  independent  banks  and  the  branches  of  the  State 
Bank  refused  to  pay  taxes  under  this  law,  as  they  had 
under  the  law  of  1853.  They  claimed  that  the  section  of 
the  incorporation  act  of  1845,  which  prescribed  the  rule 
of  taxation  for  them,  was  a  contract,  not  liable  to  be  im- 
paired by  subsequent  legislative  or  constitutional  provi- 
sion; and  that  they  were,  therefore,  not  liable  to  be  taxed 
by  a  different  rule,  however  warranted  by  constitution  or 
law  in  respect  to  institutions  not  similarly  protected. 
This  claim  had  been  carried  into  the  courts,  and  the  Su- 
preme Court  of  the  state  denied  it,  but  it  was  sustained 
by  the  Supreme  Court  of  the  United  States,  to  which  an 
appeal  was  taken.  A  new  tangle  was  now  given  the  legal 
situation  by  a  decision  of  the  State  Supreme  Court  in 
December,  1857,  announcing  its  adherence  to  its  original 
position. 

It  seemed  as  though  the  banks  would  escape  taxation 
altogether.  The  state  officers  were  bound  by  the  decision 
of  the  state  court  and  tried  to  enforce  the  collection  of 
the  taxes  imposed  by  the  law  of  1857.  But  the  banks, 
relying  upon  the  decision  of  the  Supreme  Court  of  the 
United  States,  placed  to  the  credit  of  the  state,  as  pre- 
viously, the  taxes  required  by  the  act  of  1845,  and  made 
no  return  for  taxation  under  the  later  laws.  In  some  in- 


293]  HISTORY  AND  TAXATION  OF  BANKS  293 

stances  injunctions  were  obtained  from  the  federal  courts, 
restraining  the  state  officers  from  the  execution  of  the 
law.  These  injunctions  and  some  defects  in  the  law  itself 
prevented  any  collection  of  taxes  under  it,  while  the  law 
prevented  the  collection  of  the  sums  deposited  by  the 
banks  in  lieu  of  taxes  under  the  act  of  1845. 

COMPROMISE. 

In  the  face  of  this  deadlock,  the  question  was  now 
definitely  presented  to  the  legislature  as  to  whether  they 
would  have  the  claim  of  the  banks  to  exemption  contested 
again  in  the  federal  courts,  or  whether  they  would  modify 
the  act  of  1858.121  As  the  auditor  wrote  in  1859,122 

The  door  is  again  open  for  an  expenditure  of  some  thirty  or  forty  thou- 
sand dollars  on  the  part  of  the  state,  if  she  sees  fit  to  undertake  it,  in 
attempting  to  enforce  against  the  banks  the  collection  of  a  tax  which  has 
been  repeatedly  adjudicated  and  decided  by  the  court  to  be  unconstitu- 
tional and  void. 

The  legislature,  however,  refused  to  acknowledge  it- 
self defeated  and  passed  the  general  property  tax  law  of 
April  5,  1859,  which  again  provided  for  the  taxation  of 
banks  on  the  basis  of  their  property  at  the  general  rate  of 
state  taxes.123  Bankers,  brokers,  and  stock  jobbers  must 
report  each  year  to  the  county  auditor  the  average  amount 
of  notes  and  bills  discounted,  and  the  average  amount  of 
all  moneys,  etc.,  loaned,  invested,  or  otherwise  used  with 
a  view  to  profit,  less  the  amount  of  the  specie  reserve  on 
hand.  The  amounts  returned  "shall  be  taxed  for  the  same 
purposes  and  to  the  same  extent"  that  other  personal  prop- 
erty was  taxed.  Banks  organized  under  the  "State  Bank 
of  Ohio  act"  should  have  fifty  per  cent,  penalty  added  in 
case  of  their  refusal  to  make  such  statement  (sec.  63).  It 
will  be  noticed  that  the  basis  of  taxation  laid  down  in  the 
law  of  1858  was  here  restated.  The  banks  again  resisted 
and  many  of  them  secured  injunctions  restraining  the 
assessment  and  collection  of  these  taxes,  so  that  the  state 

121Gov.  Mess.,  Jan.  3,  1859.     Exec.  Doc.,  1858,  II,  99. 

™Exec.  Doc.,  1859,  II,  72. 

12356  O.  L.,  175,  §§  60-68.    2  Swan  and  Critchfield,  1438. 


294  FINANCIAL  HISTORY  OF  OHIO  [294 

obtained  no  revenues  from  these  banks.124  Four  of 
the  banks  had  accepted  the  provisions  of  the  act  of  1850, 
and  claimed  the  right  to  pay  taxes  under  that  act.125 

In  view  of  the  decision  of  the  Supreme  Court  of  the 
United  States  it  seemed  foolish  to  continue  to  try  to  club 
the  banks  into  submission  by  penalties  and  threats.  Ac- 
cordingly the  legislature  at  length  changed  the  basis  of 
taxation  from  property  to  a  combination  of  capital  and 
profits.  The  act  of  April  4, 1861,126  taxing  banks,  provided 
that  every  bank  should  each  year  give  the  assessor  (1)  the 
amount  of  capital,  (2)  the  undivided  profits,  (3)  the 
amount  of  term  deposits  (i.e.  not  drawn  on  demand).  The 
sum  of  these  three  were  to  be  considered  the  property  of 
the  bank  employed  in  banking,  and  were  to  be  taxed  as 
other  property.  Banks  organized  under  the  State  Bank 
law  of  February  24,  1845,  should  make  the  same  returns, 
but  might  deduct  real  estate  already  taxed.  These  banks 
must  notify  the  county  auditor  of  the  acceptance  of  this 
form  of  taxation  in  lieu  of  that  imposed  by  the  act  of 
April  5,  1859,  if  they  should  accept  it. 

Most  of  the  banks  acepted  the  provisions  of  this  act, 
and  paid  their  taxes  under  it  from  now  on.  Their  back 
taxes  they  paid  according  to  their  charters,  under  the  deci- 
sion of  the  Supreme  Court  of  the  United  States.  As  there 
was  now  practically  nothing  in  controversy  the  suits 
against  the  banks  were  discontinued.127  Additional  pres- 
sure was  brought  to  bear  upon  the  few  banks  that  had  not 
agreed  to  the  provisions  of  the  act  of  1861,  by  a  clause  in 
the  act  authorizing  the  banks  to  suspend  specie  payments, 
denying  this  privilege  to  those  banks  that  did  not  agree  to 
be  taxed  under  the  act  of  1861.128  Here  at  last  was  an 
effective  weapon  with  which  to  compel  obedience. 

""Eighteen  banks  brought  suit  in  1861,  twenty-one  more  in  1862.  In 
January,  1862,  a  perpetual  injunction  was  granted  the  banks. 

mAud.  rep.,  1860. 

MO.  L.,  1861,  p.  59.  This  act  amended  that  of  April  5,  1859,  repealing 
sec.  60-68. 

"'Rep.  of  Att'y  General.  Exec.  Doc.,  1861,  II,  251. 

mAct  of  Jan.  16,  1862.    59  O.  L.  3. 


295]                    HISTORY  AND  TAXATION  OF  BANKS  295 

In  November,  1860,  the  number  of  banks  in  Ohio,  with 
their  capital  and  circulation,  was  as  follows:129 

Capital.  Circulation. 

State  Bank  and  36  branches $4,104,500  $7.403,959 

Seven  independent  banks 632,264  575,68s 

Eleven  free  banks 1,124,600  655,243 


Total    $5,861,364  $8,634,887 

The  banking  system  of  Ohio  had  now  finally  been  clearly 
defined  by  law,  and  was  proving  to  be  one  of  the  best  in 
the  Ohio  valley.  It  had  been  developed  out  of  many  trying 
and  even  disastrous  experiences,  and  the  bad  features  had 
been  gradually  eliminated.  The  charters  of  the  State  Bank 
and  of  the  independent  banks  would  expire  on  May  1, 
1866,  when  all  the  banks  of  the  state  could  be  brought  under 
the  free  banking  law,  which  must  be  regarded  as  the  pro- 
posed ultimate  basis  of  the  Ohio  system  at  this  time.  The 
charters  of  the  free  banks  did  not  expire  until  1872.  But 
before  Ohio  could  finally  work  out  her  own  system,  the 
establishment  of  the  national  banking  system  introduced  a 
disturbing  factor,  and  profoundly  altered  the  banking 
situation,  not  only  in  Ohio  but  throughout  the  Union.  The 
period  after  the  outbreak  of  the  Civil  War  therefore  intro- 
duces us  to  a  new  era  in  the  history  of  banking  and  bank 
taxation  in  Ohio. 

In  1858  Ohio  adopted  an  independent  treasury 
system.130  Taxes  were  to  be  collected  in  coin  or  notes  of 
those  specie  paying  banks  of  Ohio  which  issued  no  notes 
under  $5 — a  virtual  exclusion  of  Ohio  bank  paper.131  After 
July  4,  1860,  no  notes  under  $10  were  to  be  received ;  after 
July  4,  1865,  none  under  $20.  After  1872  nothing  but 

12?Gov.  Mess.,  Jan.  /,  1861.  The  governor  noted  that  issues  of  foreign 
banks  to  an  amount  equal  to  the  domestic  issues  circulated  in  Ohio,  and 
prevented  any  increase  of  domestic  circulation.  Most  of  the  foreign 
issues  were  of  banks  which  had  suspended  specie  payments  in  Pennsylvania, 
Maryland,  Virginia,  Missouri,  and  to  a  less  degree  of  other  states. 

""Act  of  April  12,  1858. 

mAs  the  notes  of  the  banks  of  other  states  were  not  forbidden,  a  large 
proportion  of  the  taxes  began  to  be  paid  in  the  notes  of  these  banks. 
Gov.  Mess,  in  Exec.  Doc.,  1858,  II,  96. 


296  FINANCIAL  HISTORY  OF  OHIO  [296 

coin  was  to  be  used  by  the  state.132  In  adopting  this 
system  Ohio,  in  common  with  a  number  of  other  states,  was 
but  imitating,  though  somewhat  feebly,  the  example  of  the 
federal  government,  which  had  established  its  Independent 
Treasury  system  in  1846.  Before  the  program  indicated 
could  be  even  partially  entered  upon  in  Ohio,  however,  the 
outbreak  of  the  Civil  War,  the  "suspension  of  specie  pay- 
ments by  the  banks,  the  issue  of  the  greenbacks,  and  the 
establishment  of  the  national  banking  system  prevented 
the  execution  of  the  plan,  although  the  law  remained  on  the 
statute  books,  to  be  revived  possibly  at  some  later  date. 

THE  ORGANIZATION  OF  NATIONAL  BANKS  AND  THEIR  TAXATION 

The  banks  of  Ohio,  together  with  those  of  Indiana  and 
Kentucky,  were  the  only  ones  in  the  country,  with  some 
scattered  exceptions,  which  had  not  suspended  specie 
payments  by  January  1, 1862.133  But  by  the  act  of  January 
16,  1862,  the  Ohio  banks  were  authorized  temporarily  to 
suspend  specie  payments,  and  to  receive  and  pay  out 
United  States  demand  notes.134  There  was  quite  a  strug- 
gle in  the  board  of  control  of  the  State  Bank  as  to  whether 
they  should  permit  that  bank  and  its  branches  to  suspend, 
but  it  was  finally  carried. 

With  the  organization  of  the  national  banking  sys- 
tem135 the  Ohio  banks  re-organized  as  national  banks  more 
promptly  than  those  of  any  other  state  in  the  Union.  The 
first  annual  report  of  the  comptroller  of  the  currency,  of 
November  28,  1863,  showed  that  of  the  134  banks  that  had 
up  to  that  time  been  organized  as  national  banks,  38  were 
in  Ohio,  or  almost  double  the  number  in  any  other  state 
(20  each  in  Indiana  and  Pennsylvania  were  next).136  The 
number  of  independent  banks  was  reduced  from  eight  at 

"'Bankers'  Magazine,  XII,  961.    Quoted  by  Sumner,  Hist,  of  Banking 
in  the  U.  S.,  p.  442. 

""Bankers'  Mag.,  XVI,  650. 

"*O.  L.,  1862,  p.  3. 

135By  act  of  Congress  of  Feb.  25,  1863. 

^Bankers'  Mag.,  XVIII,  617. 


297]  HISTORY  AND  TAXATION  OF  BANKS  297 

the  beginning  of  the  year  1863  to  five  in  August,  and  the 
free  banks  from  13  to  10.  The  circulation  of  these  two 
kinds  declined  from  f  1, 800,000  in  January,  1863,  to  $444,- 
000  in  November,  1865,  and  to  |189,000  in  November, 
1866.137  Thus  the  forms  of  banking  which  had  been  de- 
veloped in  Ohio  during  the  previous  twenty  years  yielded 
to  the  national  system.  An  act  of  March  16,  1865,  pre- 
scribed the  methods  by  which  the  "free  banks"  might  retire 
their  circulation  and  close  up  business.138 

The  State  Bank  with  its  thirty-six  branches,  whose 
charter  expired  on  May  1,  1866,  also  prepared  to  wind  up 
its  business.  On  November  25,  1865,  the  president  sent 
out  a  circular  letter  asking  that  all  notes  issued  by  this 
institution  be  immediately  presented  for  redemption.  At 
the  same  time  they  began  the  work  of  destroying  the  cir- 
culating notes  as  rapidly  as  they  came  in.139  By  Novem- 
ber, 1866,  the  commissioner  of  statistics  was  able  to  report 
that  "the  banks  of  Ohio  now  consist  of  only  two  kinds, 
national  and  private  banks/'  There  were  88  private  banks 
in  the  state,  situated  in  forty-five  counties  (or  just  half  of 
all ) ,  with  an  aggregate  capital  of  $2,743,664  or  an  average 
of  about  $31,000.140  In  October  of  the  same  year  there 
were  135  national  banks  in  the  state,  with  an  aggregate 
capital  of  $21,904,700,  or  an  average  of  $162,000,  and  out- 
standing circulation  of  $18,000,000.* 41  There  were  also 
$98,410  state  bank  notes  still  outstanding. 

With  the  reorganization  of  the  Ohio  banks  under 
federal  law  the  question  soon  presented  itself  as  to  whether 
the  state  could  tax  these  banks.  The  auditor,  in  his  report 
for  1863,142  expressed  the  belief  that  the  situation  was  the 

137Treas.  rep.  Exec.  Doc.,  1865,  II,  40;  1866,  I,  7. 

1M62  O.  L.  51.  The  bank  items  of  the  Bankers'  Magazine  during  this 
period  are  full  of  notices  of  changes  of  state  into  national  banks. 

"'Bankers'  Mag.,  XIX,  763 ;  XX,  590.  The  act  to  incorporate  the  State 
Bank  of  Ohio  was  not  formally  repealed  until  1894.  Act  of  May  21,  1894. 
0.  L.,  p.  396. 

"°Rep.  Com'r  of  Stat.  Exec.  Doc.,  1866,  I,  669. 

"'Bankers'  Mag.,  XXII,  535. 

MExec.  Doc.,  1863,  I,  60. 


298  FINANCIAL  HISTORY  OF  OHIO  [298 

same  as  in  the  case  of  the  branches  of  the  Second  Bank  of 
the  United  States,143  and  that  therefore  the  national  banks 
could  not  be  taxed  by  the  state.  Nevertheless  the  assessors 
proceeded  to  assess  the  value  of  shares  in  national  banks 
in  the  hands  of  the  owners,  and  to  list  them  for  taxation. 
Their  right  to  do  this  was  resisted  by  the  shareholders  on 
the  ground  that  the  capital  of  the  banks  was  invested  in 
United  States  government  bonds,  and  as  these  were  ex- 
empt from  taxation  the  shareholders  could  not  be  taxed. 
Against  this  contention  the  new  auditor  held  that  the  in- 
dividual shareholders  could  be  taxed  on  their  shares, 
though  the  banks  as  such  could  not  be  taxed.144  The  legis- 
lature took  the  latter  view  and  passed  an  act  providing  for 
the  taxation  of  shares  in  the  hands  of  the  individual  share- 
holders.145 

As  the  banks  and  bankers  still  resisted  the  collection 
of  these  taxes,146  the  matter  was  carried  up  to  the  Supreme 
Court  of  Ohio,  which  held  that  the  state  had  power  to  tax 
shares  in  the  national  banks  located  in  Ohio,  subject  to  the 
limitations  that  such  tax  should  not  exceed  the  rate  im- 
posed upon  other  moneyed  capital  of  individuals,  nor  that 
imposed  upon  shares  in  the  state  banks.147  The  way  now 
being  cleared,  the  legislature  passed  a  definite  act  "to  pro- 
vide for  the  taxation  of  bank  shares  and  bankers."148  All 
shares  of  stockholders  were  to  be  listed  at  their  true  value 
in  money  and  taxed  where  the  bank  was  located ;  real  estate 
was  to  be  taxed  locally  and  deducted  from  the  value  of  the 
shares.  Each  year  the  president  and  cashier  were  required 
to  make  out  a  list  under  oath  of  the  stockholders  and  their 
shares,  which  was  to  be  given  to  the  county  auditor.  The 
shares  were  then  to  be  entered  on  the  duplicate  and  taxed 
to  the  shareholders ;  if  they  did  not  pay  their  taxes  it  was 

"See  above,  p.  260,  ff. 
"Aud.  rep.,  Exec.  Doc.,  1865,  I,  339- 
45Act  of  April  2,  1865. 
"Aud.  rep.,  Exec.  Doc.,  1866,  I,  132. 

"Frazier,  et  al.  v.  Siebern,  et  al.     16  O.  S.,  Rep.  614.     See  i  Sayler, 
Ohio  Statutes,  795,  note. 

14*Act  of  April  16,  1867.    Swan  and  Sayler,  763 ;  O.  L.,  1867,  p.  204. 


299]  HISTORY  AND  TAXATION  OF  BANKS  299 

made  illegal  for  these  shares  to  be  transferred  or  to  have 
dividends  paid,  as  long  as  taxes  and  costs  remained  un- 
paid. But  the  banks  were  permitted  to  pay  the  taxes  and 
deduct  the  amount  from  the  dividends. 

There  had  grown  up,  alongside  the  national  banks,  a 
large  number  of  private  or  unincorporated  banks,  which  up 
to  this  time  had  practically  escaped  taxation.  This  same 
act  now  provided  for  taxing  them  on  their  surplus.  They 
were  required  each  year  to  send  a  statement  to  the  county 
auditor  showing  (1)  the  average  amount  of  discounted 
notes,  (2)  the  average  amount  of  accounts  receivable,  (3) 
the  average  amount  of  cash,  (4)  the  average  amount  of 
stocks,  bonds,  etc.,  (5)  the  average  amount  of  real  estate, 
(6)  the  average  amount  of  deposits,  (7)  the  average 
amount  of  accounts  payable,  other  than  deposits,  (8)  the 
average  amount  of  government  securities,  (9)  the  amount 
of  capital.  From  items  1-5  the  auditor  was  to  deduct  items 
6-8,  and  enter  the  remainder  on  the  duplicate,  where  it 
would  be  taxed  at  the  general  rate  of  taxation.149  That 
this  was  not  altogether  successful  in  subjecting  the  private 
banks  to  taxation  seems  to  be  indicated  by  the  complaint  of 
the  governor  a  few  years  later  that  "it  ought  not  to  be 
possible,  as  it  now  is,  for  private  bankers  to  do  a  very 
large  business  and  yet  only  pay  taxes  on  office  furni- 
ture."150 

No  further  changes  were  made  in  the  legislation  re- 
garding bank  taxation  until  1876,  when  a  state  board  of 
equalization  of  bank  property  was  provided  for,  in  accord- 
ance with  a  recommendation  to  that  effect  from  the  state 

"'This  was  amended  by  the  act  of  April  17,  1881  (O.  L.,  p.  109), 
which  provided  that  item  g  should  consist  of  the  value  of  all  property  not 
otherwise  enumerated,  and  this  was  to  be  added  to  the  remainder  obtained 
by  the  method  described  above  for  purposes  of  taxation.  By  act  of 
April  16,  looo,  item  8  was  defined  as  government  securities  exempt  from 
taxation,  and  item  g  as  the  value  of  office  furniture  and  other  property 
not  enumerated.  The  auditor  was  to  substract  items  6-8  from  items  1-5 
and  add  9,  and  to  place  the  value  so  obtained  on  the  duplicate  to  be  taxed 
at  the  general  rate.  (O.  L.,  1900,  p.  347). 

"°Gov.  Mess.  Exec.  Doc.,  1872,  II,  570. 


H- 


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afflknmgr  gwiai  wwne  ctaiBtitvted 


T  _^  __,L_      -   -  __     -ar_---  - *•    __, ..--,__ 

-   i      -  .  -      -    -    :. 


thr  «•<?  ag  atrtadr  art  fertk.    Br 
per  cm.  «ff  tfce-  -*5.A  valw*"  c€  tfcsr 
«n  tke-  ox  dvpikme*  m  tke 
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Iv  ifl^i>    O.  ^-v  fL  s 


301]  HISTORY  AND  TAXATION  OP  BANKS  301 

make  its  property  bear  a  burden  relatively  fair  to  other 
property  in  the  community,  and  upon  this  amount  the 
local  and  state  tax  rate  is  applied.  Real  estate  belonging 
to  the  bank  is  not  included  in  this  calculation,  for  it  is 
taxed  as  other  real  estate.158  This  same  practice  was  fol- 
lowed by  the  permanent  tax  commission  in  1910.159  The 
last  revision  of  the  statutes  of  Ohio  show  the  system  of 
bank  taxation  today  substantially  as  it  was  fixed  in  1867.160 
A  student  of  taxation  in  Ohio  reaches  the  following  conclu- 
sion regarding  the  taxing  of  banks:161 

While  Ohio  has  some  of  the  worst  tax  laws  in  the  Union,  notably  in 
assessing  railroads,  it  is  a  great  comfort  to  the  writer  to  be  able  to  boast 
that  its  law  for  the  taxation  of  banks  is  as  near  perfect  as  can  be  made. 


'"Report  of  the  Tax  Commission  of  1906,  p.  12. 
'"First  an.  rep.  Tax  Commission  of  Ohio  (1910),  p.  6. 
l"The  General  Code  of  the  State  of  Ohio  (1910).    §§  5408-5411. 
"*N.  W.  Evans,  A  History  of  Taxation  in  Ohio.     (Cincinnati,  1906). 
P.  52- 


CHAPTER  VI 
HISTORY  AND  TAXATION  OF  RAILROADS.1 

EARLY  RAILROAD  BUILDING. 

The  early  history  of  railroads  is  nowhere  better  illus- 
trated than  by  the  experience  of  Ohio.  Her  peculiar  posi- 
tion between  the  Great  Lakes  and  the  Ohio  River,  together 
with  the  situation  of  the  passes  through  the  Allegheny 
Mountains,  have  forced  most  of  the  artificial  lines  of  com- 
munication between  the  East  and  the  West  to  cross  the 
state.  From  the  first  the  people  of  Ohio  have  manifested 
the  liveliest  interest  in  the  subject  of  transportation,  and 
were  prompt  to  see  the  advantage  of  railroads  when  this 
method  of  transportation  was  first  suggested.  Rich  in  its 
natural  resources,  Ohio  was  the  mecca  of  emigrants  from 
the  states  to  the  east.  While  the  accessible  sections  on  the 
banks  of  the  Ohio  River  were  first  populated,  the  settlers 
soon  pressed  on  to  the  interior  counties  of  the  state  to 
territory  equally  rich  in  soil  and  timber.  An  enterprising 
people,  eager  for  rapid  growth  and  ambitious  for  the  imme- 
diate development  of  the  state's  resources,  they  exhibited  a 
liberal  spirit  towards  all  kinds  of  internal  improvements. 

With  growth  of  population  and  increased  production 
the  need  of  a  market  became  continually  more  pressing. 
The  route  down  the  Ohio  and  Mississippi  rivers  to  New 
Orleans  was  never  wholly  satisfactory,  and  moreover  did 
not  afford  an  outlet  for  the  interior  settlements.  State  and 
county  roads  were  built,  generally  to  afford  access  to  a 
navigable  waterway,  and  in  1825  the  canal  system  was 
begun.  These  ran  north  and  south  and  connected  the  cen- 
tral part  of  the  state  with  the  Great  Lakes  or  the  Ohio 
River;  in  connection  with  the  Erie  Canal  they  now  pro- 
vided a  through  route  to  the  Atlantic  coast.  Prices  rose, 
production  increased,  and  the  population  grew  at  a  rapid 
rate.  Their  success  fostered  a  spirit  of  enterprise  among 

*I  desire  to  record  my  indebtedness,  in  the  preparation  of  this  chapter, 
to  Mr.  H.  A.  Clark,  of  Marquette,  Mich.,  who,  while  a  member  of  my 
seminar  at  Oberlin  College,  wrote  a  paper  on  this  subject,  of  which  I  have 
here  made  liberal  use. 


303]  HISTORY  AND  TAXATION  OF  RAILROADS  303 

the  people  and  paved  the  way  for  the  building  of  railroads. 
Railroad  construction  was  undertaken  in  Ohio  by 
private  enterprise.  As  the  state  had  built  the  canals,  its 
assistance  was  not  expected  in  the  building  of  what  might 
become  a  competitor  of  the  public  works.  The  legislature, 
however,  was  liberal  in  granting  charters  to  private  com- 
panies, each  of  which  was  by  special  act.  The  first  act  to 
incorporate  a  railroad  company  in  Ohio  was  that  of 
February  23,  1830,  granting  a  charter  to  the  Ohio  and 
Steubenville  Railway  Company.  Although  this  road  was 
never  built,  its  charter  is  of  interest,  for  it  was  the  legisla- 
ture's guide  in  drafting  subsequent  ones,  and  contained  the 
provisions  peculiar  to  early  railroad  charters.  Like  all  of 
these,  both  in  England  and  the  United  States,  it  provided 
for  the  use  of  the  track  by  all  shippers,  who  were  expected 
to  own  their  own  carriages.  Maximum  rates  of  toll  were 
prescribed  for  freight  and  passengers.  The  capital  stock 
was  limited  to  $500,000,  and  the  stipulation  made  that  no 
part  of  it  should  be  used  in  banking.2  The  right  of  eminent 
domain  was  also  granted  to  the  company.  The  following 
year  a  second  charter  was  granted,  and  in  1832  there  were 
ten.  In  January  of  this  year  there  was  already  a  standing 
committee  on  "Rail-roads"  in  the  Ohio  House  of  Repre- 
sentatives,3 and  bills  were  beginning  to  come  in  from  pros- 
pective companies  asking  for  acts  of  incorporation.  In- 

2That  this  provision  was  needed  seems  to  be  shown  by  the  experience 
of  the  state  with  the  Ohio  Railroad  Company  in  1835.  A  provision  in  its 
charter  read  that  "the  funds  of  said  company  shall  be  paid  out  in  orders 
drawn  on  the  treasurer,  in  such  manner  as  shall  be  pointed  out  by  the  by- 
laws of  the  company;  and  that  all  such  orders  for  the  payment  of  money 
so  drawn  shall,  when  presented  to  the  treasurer,  be  by  him  paid  and  re- 
deemed." Under  authority  of  this  clause  the  company  began  issuing  notes 
and  successfully  put  out  a  large  circulation.  The  state  granted  a  subsidy 
to  the  railroad  and  with  this  some  of  the  notes  were  redeemed,  but  no 
work  of  a  permanent  character  was  done  on  the  road,  and  upon  its 
suspension  a  few  years  later  (1842)  the  state  lost  all  of  the  $557,000  it 
had  granted.  Several  hundred  thousand  dollars  in  worthless  currency 
were  left  outstanding.  Leland,  "The  Ohio  Railroad".  Mag.  of  West.  Hist., 
XIII,  744. 

3Ho.  J.,  1822,  p.  307. 


304  FINANCIAL  HISTORY  OF  OHIO  [304 

terest  was  rapidly  growing;  up  to  and  including  1836  the 
general  assembly  granted  fifty-six  charters,  but  only  five 
of  these  roads  were  actually  built.  These  were  the  Mad 
River  &  Lake  Erie,  the  Mansfield  &  Sandusky  City,  Little 
Miami,  Columbus  &  Xenia,  and  Kalamazoo  &  Erie  rail- 
roads.4 Of  these  the  last  named  was  the  first  railroad 
actually  built  in  the  state,  being  finished  in  1836,  between 
Toledo,  O.,  and  Adrian,  Mich.,  a  distance  of  about  33 
miles.5 

The  contrast  between  the  large  number  of  charters 
granted  and  the  few  roads  built  indicates  clearly  the  specu- 
lative and  even  visionary  nature  of  many  of  these  enter- 
prises. On  the  scale  on  which  they  were  projected  they 
were  certainly  premature,  and  local  capital  was  lacking  to 
carry  them  through.  Railroad  construction  was  found  to 
be  a  far  more  expensive  and  difficult  undertaking  than 
had  been  anticipated.  It  was  difficult  to  enlist  capital  in 
a  venture  which  gave  promise  neither  of  immediate  nor 
large  returns.  Notwithstanding  the  general  desire  to  ob- 
tain railroads,  efforts  to  raise  by  stock  subscriptions  suffi- 
cient funds  to  construct  the  roads  authorized  were  futile. 
In  not  a  single  case  was  sufficient  stock  subscribed  to  com- 
plete the  road  as  planned. 

Meanwhile  the  canals  of  the  state  had  been  built  and 
opened  to  traffic,  and  were  proving  successful  enterprises. 
The  state  had  invested  a  large  amount  in  their  construction 
and  did  not  wish  to  see  the  profits  of  the  canals  cut  into 
by  this  new  transportation  agent.  Moreover  the  policy  of 
internal  improvements  was  taken  up  again  in  1835  on  a 
more  extravagant  scale  and  further  sums  were  desired  for 
canal  building.  Rivalry  sprang  up  between  the  canal  and 
railroad  interests  of  the  state,  which  found  expression 
especially  in  the  charters  granted  to  railroads.  It  was 
argued  by  the  canal  interests  that  it  would  be  unwise  for 
the  state  to  imperil  the  financial  success  of  the  canals,  in 

*O.  L.  L.,  v.  30,  p.  15;  v.  33,  p.  387 ;  v.  34,  P-  4Q4- 

"Atwater,  History  of   Ohio   (1838),  p.  279.     See  also  R.   S.   Kayler, 
"Ohio  Railroads",  in  Ohio  Arch,  and  Hist.  Soc.  Pub.,  IX,  189. 


305]  HISTORY   AND  TAXATION  OF  RAILROADS  305 

which  it  was  itself  so  heavily  involved,  by  allowing  the  con- 
struction of  railroads  which  would  become  direct  com- 
petitors and  would  undoubtedly  make  serious  inroads  on 
the  income  of  the  canals.  This  argument  did  not  prevent 
the  granting  of  charters,  but  it  did  secure  the  incorporation 
in  some  of  them  of  a  provision  by  which  they  agreed  to 
pay  to  the  state 

such  amounts  annually  as  in  the  opinion  of  the  Board  of  Public  Works 
would  be  equivalent  to  one-half  the  tolls  charged  by  the  state  at  the 
time  upon  like  property  transported  by  canals  during  the  season  of  naviga- 
tion but  for  the  existence  of  the  railroad. 

This  provision  proved  later,  however,  to  be  of  little  value. 
Since  the  stock  subscriptions  failed  to  secure  the 
money  needed  to  build  railroads,  the  state  next  granted 
the  companies,  by  new  charters  or  amendments  to  the  old 
ones,  the  right  to  borrow  money,  and  to  pledge  their  income 
and  stock  for  its  repayment.  In  most  cases  the  amount  to 
be  borrowed  was  limited  to  the  amount  of  stock  paid  in  or 
subscribed,  but  often  up  to  an  amount  not  exceeding  the 
authorized  capitalization.  Every  effort  was  then  made  to 
increase  the  subscriptions  and  the  authorized  capital,  so  as 
to  borrow  larger  amounts.  There  was  present  every  in- 
ducement to  speculation,  the  overstraining  of  credit,  and 
even  wilful  misrepresentation  and  fraud.6  Later  charters 
or  amendments  gave  the  railroads  power  to  pledge  the  in- 
come and  property  of  the  company,  and  in  some  cases  the 
franchise,  as  security  for  money  borrowed. 

STATE  AND  LOCAL  AID. 

The  railroads,  however,  were  still  unable  to  command 
sufficient  means  to  build  their  lines,  and  what  progress 
they  were  making  was  abruptly  checked  by  the  panic  of 
1837.  But  the  people  were  interested  and  clamored  im- 
patiently for  their  construction.  They  wished  a  means  of 
transportation  that  would  not  only  afford  an  outlet  for 
the  products  of  the  interior  sections  of  the  state,  which  were 
not  readied  by  the  canals,  but  which  would  also  cheapen 

°Rep.  of  RR.  Coinm'r,  1875;   cf.  ibid.,  1868. 


306  FINANCIAL  HISTORY  OF  OHIO  [306 

transportation  and  reduce  the  time  required  to  get  pro- 
duce to  the  market.  As  stock  subscriptions  and  loans  had 
not  been  successful  in  providing  the  necessary  capital,  state 
aid  seemed  the  only  other  solution.  Accordingly,  in  1837, 
an  act  was  passed  providing  for  a  loan  of  credit  by  the  state 
to  railroad  companies,  and  a  subscription  to  the  stock  of 
turnpike,  canal  and  slackwater  navigation  companies.7  In 
one  form  or  another  similar  aid  had  been  extended  to  rail- 
road companies  in  other  states,  especially  in  the  South.8 
The  Ohio  act  provided  that  the  state  should  loan  its  credit 
to  railroads  in  6  per  cent,  transferable  stock,  redeemable  in 
twenty  years,  to  the  amount  of  one-third  of  the  capital 
stock,  provided  that  the  other  two-thirds  had  been  actually 
paid  in. 

In  order  to  insure  the  state  against  any  loss  through 
mismanagement  of  the  companies  or  through  fraud  the  act 
imposed  certain  restrictions  and  prescribed  certain  condi- 
tions which  had  to  be  complied  with  before  the  Fund  Com- 
missioners could  issue  the  certificate  of  stock  in  their  be- 
half, thus  creating  a  state  liability. 

First,  it  was  required  that  the  Board  of  Public  Works 
should  have  approved  of  the  plan  and  estimated  most  of  the 
road  and  have  determined  that  the  road  would  be  of  public 
utility,  and  further  that  within  two  years  after  its  comple- 
tion, it  would  in  their  opinion  yield  a  net  profit  of  at  least 
two  per  cent.,  on  the  money  invested  in  its  construction 
and  rolling  stock. 

Second,  it  was  required  that  the  Fund  Commissioners 
be  satisfied  by  the  oaths  of  the  officers  of  the  company  that 
subscriptions  had  been  made  to  their  capital  stock,  equal 
to  two-thirds  of  the  sum  necessary  to  complete  the  road  and 
fixtures,  and  that  the  company  had  vested  and  expended  a 
sufficient  amount  of  their  capital  to  make  the  state  secure 
in  the  sums  to  be  advanced  under  the  authority  of  the  act. 

Third,  it  was  required  that  the  Fund  Commissioners 

'Act  of  March  24,  1837. 

*See    Cleveland   and   Powell,   Railroad  Promotion  and   Capitalisation 
(N.  Y.,  1909),  chap.  XV.    The  Ohio  law  is  incorrectly  stated  (p.  217). 


307]  HISTORY  AND  TAXATION  OF  RAILROADS  307 

be  also  satisfied  by  the  oaths  of  the  officers  of  the  company 
that  it  had  actually  expended  in  its  construction  and  in  the 
purchase  of  land  for  the  same  one-third  of  the  capital 
stock  subscribed. 

Fourth,  it  was  required  that  the  Fund  Commissioners 
be  satisfied  (by  what  kind  of  proof  was  not  specified)  that 
the  stock  subscriptions  should  be  subscribed  by  responsible 
individuals  or  corporations. 

Fifth,  there  was  required  a  written  pledge,  duly  exe- 
cuted under  the  authority  of  the  president  and  directors  of 
such  company  of  the  capital  stock,  estate,  tolls,  and  profits 
of  the  company,  to  secure  the  re-payment  of  the  sums  ad- 
vanced by  the  state. 

Sixth,  it  was  also  required  that  the  last  mentioned 
pledge  should  be  accompanied  with  such  security  as  the 
Fund  Commissioners  might  approve,  for  the  faithful  expen- 
diture of  the  principal  and  the  punctual  payment  of  the 
interest. 

In  addition  to  these  six  prerequisites  to  a  loan  of  credit 
under  the  law,  the  provision  was  also  made  requiring  addi- 
tional security  if  the  security  of  the  road  and  works  be 
deemed  inadequate  by  the  Commissioners  of  the  Canal 
Fund. 

Under  the  provisions  of  this  law  the  following  aggre- 
gate sums  were  loaned  to  railroad  companies  in  state  scrip 
or  stock : 
The  Painesville  and  Fairport  Railroad  Company 

(in  one  issue) $     6,182 

The  Mansfield  and  Sandusky  City  R.  R.  Company 

(in  three  issues) 33,333 

The  Mad  River  &  Lake  Erie  Railroad  Company 

(in  four  issues) 270,000 

The  Little  Miami  Railroad  Company    (in  three 

issues)    115,000 

The  Ohio  Railroad  Company  (in  four  issues) 249,000 

The  Ashland  &  Vermillion  Railroad  Company  (in 

two  issues) 44,000 


Total 1717,515 


308  FINANCIAL  HISTORY  OP  OHIO  [308 

The  records  of  the  canal  fund  commissioners  show 
non-compliance  with  the  law  to  have  been  the  rule  rather 
than  the  exception.  In  every  case  where  a  loan  of  credit 
was  made  at  least  one  of  the  requirements  stated  above 
was  violated.  In  some  cases  transfers  of  real  estate  were 
entered  at  fabulous  prices,  on  the  basis  of  which  "paid-in 
subscriptions"  the  state  loaned  its  credit ;  in  some  cases  the 
board  of  public  works  did  not  pass  upon  the  public  utility 
of  the  road  or  its  certainty  of  success ;  in  some  cases  there 
was  no  adequate  proof  that  a  sufficient  amount  of  capital 
had  already  been  expended  to  secure  the  state  in  its  loan. 
Railroad  companies  seeking  state  aid  evaded  the  provisions 
of  the  law,  and  this  evasion  was  possible  because  of  the 
negligence  of  the  canal  fund  commissioners.  A  few  years 
later  a  commission  appointed  to  investigate  these  transac- 
tions reported  that  the  liabilities  assumed  by  the  state  in 
aid  of  railroads  were 

created  by  reason  of  there  not  being  bestowed  upon  those  transactions  the 
close  attention  to  the  law,  and  that  degree  of  regard  to  economy  and  the 
public  interest  which  were  demanded  by  the  importance  of  these  transac- 
tions and  the  heavy  amounts  they  involved.8 

The  burdens  involved  in  this  addition  to  the  state  debt, 
coming  as  they  did  in  the  midst  of  a  period  of  industrial 
depression,  together  with  the  extravagance  and  fraud  in- 
volved in  these  loans,  led  to  the  repeal  of  the  loan  law 
after  an  experience  of  three  years.10  Of  the  loans  made  by 
the  state  to  railroads  during  this  period  three-fifths  was 
lost.  The  Ohio  Railroad  was  a  gigantic  fraud  and  utterly 
collapsed ;  the  road  was  never  built  and  the  entire  amount 
loaned  and  given  to  the  road  was  wasted.11  The  Paines- 

*Rep.  of  Spec.  Com.  to  investigate Canal  Fund  Com'rs, 

Dec.  24,  1845. 

"Act  of  March  21,  1840.  Those  roads  which  would  have  been  entitled 
to  loans  of  credit  upon  the  faith  of  subscriptions  to  their  stock  prior  to 
Dec.  i,  1839,  were  granted  such  loans  after  the  repeal  of  the  law.  By 
virtue  of  this  provision  $209,000  was  loaned  after  this  date. 

""When  the  Board  of  Public  Works  was  authorized  to  sell  the 
personal  property  of  the  Ohio  Railroad  Company  in  1844  in  order  to 
realize  something  from  the  state's  loan,  subscription  of  stock,  gift  of 


309]  HISTORY   AND  TAXATION  OF  RAILROADS  309 

ville  &  Fairport  railroad  and  the  Ashland  railroad  were 
failures,  the  roads  being  abandoned,  and  the  whole  amount 
of  state  loans  was  sunk.  In  1862  the  state  disposed  of  its 
holdings  in  the  Little  Miami  railroad  at  par,  and  in  1866 
it  sold  the  stock  of  the  other  roads  for  a  total  of  f 36,658. 
That  is,  in  return  for  loans  of  $717,505  the  state  got  back 
a  total  of  $292,658. 

The  law  of  1837  had  provided  for  the  prompt  payment 
of  the  interest  on  the  state's  loans  of  credit,  but  the  rail- 
roads had  failed  to  meet  these  obligations.  Consequently 
an  act  was  passed  in  1843  providing  that  certificates  of 
stock  should  be  issued  by  each  company  for  the  amount 
for  which  the  state  had  become  liable,  together  with  the 
interest  then  due  and  unpaid.12  By  this  time  three  of  the 
railroads  had  failed,  while  the  Mansfield  road  had  met  all 
its  payments,  and  continued  to  do  so.  Of  the  other  two 
railroads  the  Little  Miami  company  issued  additional  stock 
at  the  time  for  unpaid  interest  to  the  amount  of  about 
|7000 ;  subsequent  issues  of  stock  and  bonds  in  payment  of 
dividends  brought  the  total  holdings  of  the  state  up  to 
$200,000  of  stock  and  $56,000  of  dividend  bonds  on  Decem- 
ber 15,  1862,  when  they  were  sold  for  par.  This  was  the 
onl\  road  which  rep-aid  the  state  for  its  original  invest- 
ment. The  interest  in  (.he  other  two  roads  was  held  until 
I860,  when  $33,333  of  stock  in  the  Sandusky  City  Company 
was  sold  for  $583;  the  common  stock  of  the  Mad  Kiver 
Company,  amounting  now  to  $395,000,  was  closed  out  for 
$33,841,  and  preferred  stock  to  the  amount  of  $4,588  for 
$2,234.13 

In  addition  to  the  state  aid  just  described  the  rail- 
land  and  labor,  which  as  a  total  amounted  to  $557,756,  it  was  reported  that 
this  property  had  disappeared  at  the  dissolution  sale  in  1842,  and  they 
were  able  to  find  only  one  set  of  car  wheels,  one  locomotive  and  one  saw 
mill."  W.  F.  Gephart,  Transportation  and  Industrial  Development  in  the 
Middle  West  (N.Y.,  1909).  P.  166,  n. 

"Act  of  March  II,  1843. 

"The  holdings  of  the  state  were  sold  by  the  Sinking  Fund  Commis- 
sioners to  Rush  R.  Sloane,  of  Sandusky,  by  order  of  the  general  assembly 
in  June,  1866. 


310  FINANCIAL  HISTORY  OF  OHIO  [310 

roads  received  assistance  in  stock  subscriptions  and  loans 
of  credit  from  counties,  townships,  cities,  and  towns  as 
well.  The  total  authorized  subscriptions  down  to  1851 
granted  by  laws  in  which  the  sums  were  specified  are  given 
in  the  following  table.  Some  laws  were  passed  in  which 
the  amount  of  the  subscription  was  not  specified. 

37  counties   subscribed $4,173,000 

55  townships  subscribed 1,005,100 

16  cities  and  towns  subscribed 1,672,000 


Total    subscriptions $6,850,100 

i  county  loaned  credit  of 92,500 

i  city  loaned  credit  of 600,000 


Total  local  aid $7,542,600" 

After  the  breakdown  of  the  policy  of  state  aid  and  the 
return  of  prosperity  in  1846  the  legislature  granted  freely 
to  the  local  governments  the  power  of  subscribing  to  the 
stock  of  local  railroads.  Such  subscriptions  were  usually 
made  upon  vote  of  the  people.  The  early  railroads  were 
short  local  affairs,  and  it  came  to  be  regarded  as  a  local 
question  whether  aid  should  be  granted,  and  if  so  to  what 
extent.  The  constitution  of  1851  prohibited  the  state  or 
any  of  the  local  divisions  from  loaning  their  credit  or  sub- 
scribing to  the  stock  of  works  of  internal  improvement. 
While  the  grant  nf  local  aid  was  made  in  response  to  a 
pressing  demand  f  >r  better  railroad  facilities,  the  policy 
on  the  whole  must  be  regarded  as  unwise.  The  stock  sub- 
scriptions were  generally  made  without  due  regard  to  busi- 
ness principles,  and  the  funds  thus  secured  were  carelessly 
used.  Practically  all  of  the  money  thus  loaned  was  lost, 
while  on  the  other  hand,  many  of  the  counties  were  still 
paying  thirty  years  afterwards  the  principal  and  interest 
of  bonds  for  roads  that  in  some  cases  were  not  built  or 
operated.  But  grave  as  were  the  abuses,  it  taught  the 

"Dr.  W.  F.  Gepha  t,  in  his  Transportation  and  Industrial  Development 
in  the  Middl"  iV'st.  n.  167,  estimates  that  the  total  amount  of  subscrip- 
tions by  the  state  and  local  governments  in  Ohio  was  not  less  than  $40,000,- 
ooo.  To  the  nresent  writer  one-fourth  of  that  sum  seems  a  safer  estimate. 


311]  HISTORY  AND  TAXATION  OF  RAILROADS  311 

people  of  Ohio  some  valuable  lessons  in  railroad  finance 
at  a  period  when  the  roads  were  yet  young  and  the  ex- 
perience consequently  less  costly  than  it  might  have  been 
later.  And  the  policy  did  have  the  good  effect  of  facilitat- 
ing the  development  of  a  much  needed  improvement. 

TAXATION  OF  RAILROADS  TO  1851. 

The  early  policy  of  the  state  was  to  develop  the  rail- 
roads rather  than  to  overburden  them  with  taxation.  How- 
ever, provision  had  been  made  for  the  taxation  of  the  rail- 
roads already  built  by  charter  stipulation  that  these  rail- 
roads would  be  subject  to  taxation  on  their  dividends  Avhen 
they  exceeded  6  per  cent,  per  annum.  Of  the  four  roads 
in  operation  in  the  state  on  December  15,  1851,  but  one— 
the  Little  Miami — had  declared  a  dividend  exceeding  6  per 
cent.,  and  provision  had  been  made  for  taxing  it  by  listing 
its  stock  and  dividends.15  It  was  to  be  assessed  on  these  to 
such  an  extent  as  would  equal  a  tax  levied  on  other  trans- 
portation companies  by  the  general  property  tax  law.  No 
general  act  taxing  property  had  been  passed  since  the  be- 
ginning of  railroad  construction  until  the  so-called  "Kelley 
law"  of  1846. 10  Tli  is  required  railroads  to  list  for  taxation 
the  full  amount  of  their  capital  stock  paid  in  by  individual 
shareholders  at  its  true  value  in  money.  Stock  held  by 
counties  and  cities  was  exempt  from  taxation.  They  were 
also  required  to  list  for  taxation  all  personal  property, 
money,  and  credits,  but  were  allowed  to  deduct  their  actual 
debts.  It  was  the  duty  of  the  county  auditor  to  assess 
the  capital  stock  and  other  personal  property  of  the  rail- 
roads, and  such  taxes  were  to  be  collected,  accounted  for, 
and  paid  over,  as  were  other  taxes  levied  for  state  pur- 
poses. The  early  railroads  whose  charters  contained  pro- 
visions for  their  individual  taxation  were,  of  course,  not 
affected  by  this  act. 

In   1848  was  passed   "an  act  regulating  railroads", 
which  provided  for  the  organization  under  a  general  Char- 
ge! of  March  23,  1849. 
"Act  of  March  2,  1846. 


312  FINANCIAL  HISTORY  OF  OHIO  [312 

ter  of  all  railroad  companies.17  The  early  idea  that  any  per- 
son might  use  the  road  on  condition  of  paying  toll,  was  now 
given  up,  and  the  modern  conception  of  the  railroad  as  an 
essential  monopoly  was  adopted.  Provision  was  also  made 
for  borrowing  money  by  the  railroads.  But  any  good  road 
which  availed  itself  of  the  privileges  conferred  by  this  act 
subjected  itself  to  a  change  in  method  of  taxation,  and 
might  hereafter  be  taxed  according  to  the  act  of  1846  in- 
stead of  its  charter  provisions.  Any  company  thus  taxed 
was  required  to  make  an  annual  report  to  the  auditor  of 
state,  showing  the  amount  of  its  capital  stock,  the  gross 
amount  of  its  tolls  or  receipts  during  the  previous  year, 
the  cost  of  repairs  and  incidental  expenses,  the  net  amount 
of  profits  and  dividends,  with  such  other  facts  as  might 
be  necessary  to  a  full  statement  of  the  affairs  and  condition 
of  the  road.18 

Few  of  the  roads  having  charter  provisions  governing 
taxation  availed  themselves  of  this  act  of  1848.  The  Mad 
River  and  Lake  Erie  Railroad  was  the  only  one  that  had 
paid  a  tax  on  its  dividends,  the  majority  of  the  roads  fail- 
ing not  merely  to  pay  any  taxes  but  even  to  send  in  reports. 
State  officials  were  lax  and  little  effort  was  made  to  enforce 
the  law.  Accordingly  in  1851  a  somewhat  more  definite 
attempt  was  made  to  reach  the  railroads  which  were  escap- 
ing taxation.19  Railroads  were  divided  into  two  classes: 
those  having  special  charters  providing  for  their  taxation 
when  dividends  exceeded  6  per  cent. ;  those  whose  charters 
made  no  provision  for  taxation.  Railroads  in  the  second 
class  were  required  to  list  their  paid-in  capital  stock,  on 
which  they  were  taxed  as  provided  in  the  law  of  1846.  Those 
in  the  first  class  were  required  to  report  their  dividends  to 
the  state  auditor  within  ten  days  after  the  dividend  was 
declared ;  if  they  declared  more  than  the  maximum  allowed 
without  being  taxed  the  auditor  was  instructed  to  draw 


"Act  of  Feb.  ii, 

**An  abstract  copy  of  these  reports  may  be  found  in  the  annual  reports 
of  the  auditor  during  this  period. 
"Act  of  March  25,  1851. 


313]  HISTORY   AND  TAXATION  OF  RAILROADS  313 

upon  them  for  6  per  cent,  of  the  dividends  of  the  previous 
year.  The  personal  and  real  property  used  exclusively  for 
corporate  purposes  was  exempted  from  taxation.  This 
legislation  was  short-lived,  for  it  was  soon  changed  by  the 
adoption  of  the  constitution  of  1851. 

In  1850  only  four  or  five  roads  were  completed  and 
opened  to  traffic,  with  a  length  of  less  than  300  miles, 
though  work  was  proceeding  on  eleven  others.20  After  the 
first  outburst  of  activity  new  enterprises  were  not  projected 
on  so  lavish  a  scale.  In  the  four-year  period  1837-40,  dur- 
ing the  operation  of  the  loan  law,  20  charters  were  granted. 
The  effect  of  the  industrial  and  financial  depression  is 
clearly  seen  in  the  period  1841-45,  when  only  13  roads  were 
chartered,  but  with  the  succeeding  revival  the  number  in- 
creased to  61  in  1846-50.  In  1851  the  constitutional  con- 
vention met,  and  it  became  evident  that  strict  provisions 
would  be  framed  concerning  railroads,  banks,  and  other 
corporations.  There  was  consequently  a  rush  for  new 
charters  or  amendments  to  old  ones.  The  legislature  in 
their  single  session  passed  21  acts  to  incorporate  railroads, 
29  acts  amending  previous  incorporation  acts,  and  36  acts 
authorizing  counties,  cities,  towns,  or  townships  to  sub- 
scribe to  stock.  All  the  charters  and  amendments  to  char- 
ters contained  authority  to  borrow  money.  The  doors  were 
thrown  open  as  wide  as  possible  to  enable  the  railways  to 
borrow  money  and  procure  stock  subscriptions.  An  act 
was  also  passed  permitting  the  consolidation  of  continuous 
lines.21 

The  adoption  of  the  constitution  this  same  year  put  an 
end  to  legislative  activity  of  this  sort  and  rendered  many 
of  these  acts  obsolete.  It  prohibited  local  governments 
from  subscribing,  raising  money  for,  and  loaning  their 
credit  to  any  joint  stock  company,  and  forbade  the  general 
assembly  from  passing  any  special  act  conferring  corporate 

"'Rep.  Com'r  of  Railroads  and  Telegraphs.  Exec.  Doc.,  1868,  II, 
275-324-  This  report  gives  a  brief  history  of  railroads  in  Ohio,  chiefly  on 
the  side  of  their  physical  development  and  legislative  treatment. 

"Act  of  March  3,  1851. 


314  FINANCIAL  HISTORY  OF  OHIO  [314 

powers.22  This  latter  section  was  made  effective  the  fol- 
lowing year  by  the  passage  of  a  general  incorporation  act 
for  all  kinds  of  companies,  corporations,  and  societies.23 
The  good  effects  of  such  a  law  is  evidenced  in  the  fact  that 
during  the  session  of  1852  only  twenty-four  local  acts  were 
passed,  mostly  concerned  with  county  and  township  affairs. 
The  taxation  of  railroads,  as  of  all  other  corporate  prop- 
erty, was  regulated  by  two  sections  in  the  new  constitution, 
which  required  the  taxation  of  all  property  in  accordance 
with  a  uniform  rate  at  its  true  cash  value,  and  that  cor- 
porate property  should  be  forever  taxed  like  the  property 
of  individuals.24 

Appropriate  legislation  was  soon  passed  to  enforce 
those  provisions.25  It  was  provided  that  every  canal, 
turnpike,  insurance,  bridge,  telegraph,  and  other  company 
"shall  list  for  taxation  at  its  actual  value,  its  real  and 
personal  property,  moneys,  and  credits  within  this  state." 
Property  was  to  be  returned  to  the  auditor  of  the  counties 
in  which  it  was  situated,  and  moveable  property  appor- 
tioned pro  rata  according  to  the  value  of  the  fixed  property. 
All  property  so  listed  should  pay  all  local  and  state  taxes. 
tThe  auditor  now  proceeded  energetically  to  enforce  the 
law  and  to  collect  taxes  from  the  railroads.26  He  notified 
the  county  auditors  to  assess  the  railroad  property  upon 
their  own  estimate  if  the  officials  failed  to  file  a  statement. 
Kailroad  officials  challenged  the  legality  of  the  tax  law, 
asserting  that  their  charters  guaranteed  them  "reasonable" 
taxes.  But  they  soon  acquiesced  in  the  determination  of 
the  legislature  and  the  state  officials  to  tax  their  property 
in  the  same  manner  as  that  of  individuals  and  never 
opposed  the  tax  laws  the  way  the  banks  did.27  In  the  two 
years  1852-3  the  assessed  valuation  of  railroad  property  in 

"Art.  VIII,  sec.  6,  and  Art.  XIII,  sec.  i. 

"Act  of  May  3,  1852. 

*Art.  XII,  sec.  2,  and  Art.  XIII,  sec.  4. 

"Act  of  April  13,  1852. 

"The  auditor  was  John  Woods. 

"See  ch.  V,  p.  283. 


315]  HISTORY  AND  TAXATION  OF  RAILROADS  315 

the  state  was  increased  from  $8,945,571  to  $17,591,894,  an 
increase  of  96  per  cent. ;  large  as  this  increase  was,  the 
auditor  asserted  that  the  assessment  did  "not  yet  place  it 
upon  the  duplicate  at  its  full  cash  value."28 

REGULATION  AND  TAXATION,  1850-1866. 

During  the  decade  1850-60  railway  building  in  Ohio 
progressed  more  rapidly  than  in  any  other  state  in  the 
Union.  Chicago  and  the  Mississippi  and  Missouri  rivers 
were  reached  during  this  period,  and  through  connections 
established  between  the  Atlantic  seaboard  and  the  grain 
states  of  the  Middle  West.  As  Ohio  was  the  gateway 
through  which  all  these  lines  were  compelled  to  pass,  every 
increase  of  harvest  in  the  West  or  of  trade  and  manu- 
factures in  the  East  increased  the  traffic  on  the  Ohio  lines. 
As  early  as  1854  Ohio  had  more  miles  of  railroad  than  any 
other  state  in  the  Union,  namely  2367 ;  by  1857  the  mileage 
had  grown  to  2844,  built  at  an  estimated  cost  of  $90,000,- 
OOO.29  They  now  reached  every  county  of  the  state  except 
eleven,30  and  there  were  already  three  or  four  roads  whose 
main  business  was  the  carriage  of  coal  and  iron.31  At  the 
beginning  of  the  decade  they  began  to  compete  actively  for 
traffic  with  the  canals,  which  they  overtook  about  the 
middle,  and  completely  outdistanced  by  the  end  of  the 
period. 

As  an  evidence  of  the  growing  importance  and  extent 
of  the  railway  system  may  be  cited  the  fact  that  an  act  of 
1856  authorized  the  consolidation  of  railroad  companies  in 
Ohio  with  railroad  companies  of  states  adjoining.32  The 
consolidations  that  created  the  great  trunk  lines  out  of  a 
series  of  unconnected  links  had  now  commenced. 

With  consolidation  went  rate  wars  and  discrimination 
on  the  part  of  rival  roads.  These  occurred  not  merely  be- 

"Aud.  rep.,  Feb.  12,  1853. 

"Gov.  Mess.  Exec.  Doc.,  1857,  I,  35 1- 

"Aud.  rep.,  1853. 

"Rep.  Com'r  of  Stat.  Exec.  Doc.,  1860,  II,  458. 

"Act  of  April  10,  1856. 


316  FINANCIAL  HISTORY  OF  OHIO  [316 

tween  competing  railroads,  but  also  between  the  railroads 
and  the  canals.  The  legislature  passed  several  futile  acts 
against  the  latter,  and  in  1861  endeavored  to  regulate  the 
former  by  the  passage  of  the  "equalization  act."33  This 
required  every  trunk  railroad  that  connected  with  two  or 
more  railroads  at  or  near  the  same  place  to  carry  all  pas- 
sengers and  freight  from  such  roads  and  to  charge  no  more 
to  one  railroad  than  to  another.  Another  section  imposed 
a  penalty  of  three  times  the  amount  of  the  freight  charges 
if  a  railroad  diverted  freight  from  the  road  over  which  it 
had  been  ordered  to  be  conveyed  by  the  shipper.  Evidently 
modern  railroad  practices  had  an  early  origin. 

Comparatively  little  of  the  capital  invested  in  rail- 
ways was  furnished  by  citizens  of  Ohio.  In  1859  the  com- 
missioner of  statistics  referred  to  the  common  idea  that 
most  of  the  railroad  bonds  were  held  in  Europe,  which  he 
considered  a  mistake.34  Of  the  bonds  issued  by  fifteen 
railroads  in  Ohio  he  calculated  that  flO,000,000,  or  one- 
third,  were  held  in  Europe,  and  $23,000,000  in  the  United 
States,  which  was  probably  typical  of  all  the  railroads.  But 
the  bonds  held  in  Europe  were  the  best  ones,  chiefly  first 
and  second  mortgage,  while  those  owned  in  this  country 
were  largely  third  mortgage  and  income  bonds,  which  were 
consequently  not  so  well  secured.  An  interesting  state- 
ment, in  view  of  subsequent  assertions  as  to  stock  water- 
ing and  overcapitalization,  was  the  following:  "probably 
not  over  two-thirds  of  the  nominal  cost  of  our  roads  is 
represented  by  money."35 

Tax  evasion  was  as  characteristic  of  the  railroads  dur- 
ing this  period  as  was  discrimination,  and  only  meager 
tax  reports  were  made  to  the  auditor.  In  1859  a  general 
tax  law  was  passed,  of  which  one  section  dealt  with  rail- 


^Act  of  April  ii,  1861.  O.  L.,  1861,  p.  74.  For  an  account  of  the  dis- 
crimination practiced  by  the  railways  against  the  canals,  see  a  forthcoming 
monograph  on  Internal  Improvements  in  Ohio. 

"Exec.  Doc.,  1859,  I,  791. 

"Ibid.,  p.  793. 


317]  HISTORY   AND  TAXATION  OF  RAILROADS  317 

road  taxation.36  By  this  act  the  officers  of  any  railroads, 
canal,  bridge,  insurance,  telegraph,  or  other  joint  stock 
company  except  banking,  were  required  to  list  all  the  per- 
sonal property  of  their  company  at  its  actual  value  with 
the  auditor  of  the  counties  in  which  the  property  was  sit- 
uated. The  value  of  the  rolling  stock  and  movable  prop- 
erty was  prorated  to  the  various  townships  and  cities 
according  to  the  value  of  the  real  estate  in  them.  All  prop- 
erty so  listed  was  to  pay  the  same  taxes  as  other  property. 
If  the  county  auditors  believed  that  the  reports  contained 
false  or  incorrect  valuations  they  were  required  to  make  a 
correct  appraisal  and  to  substitute  the  same  for  that  filed 
by  the  railroad  companies. 

Under  this  act  each  railroad  was  valued  and  listed 
by  its  own  officers  according  to  their  own  rules  or  opinions, 
and,  even  with  the  sincerest  purpose  to  act  fairly,  great 
inequality  prevailed  in  the  amounts  returned  by  the  dif- 
ferent roads.37  And  there  was  no  adequate  power  in  any 
public  officer  or  board  to  correct  this,  in  spite  of  the 
authority  given  the  county  auditor,  for  he  was  quite  unable 
to  deal  with  a  large  corporation.  This  led  to  a  recommen- 
dation from  the  governor  that  a  board  of  assessors  be 
created  for  the  purpose  of  assessing  each  railroad  for  taxa- 
tion, to  consist  of  the  several  county  auditors  of  the 
counties  through  which  the  roads  passed.38  The  following 
year  the  legislature  passed  an  act  embodying  this  sugges- 
tion.31* 

The  act  of  1862  was  an  important  one  and  with  slight 
modifications  governed  the  appraisal  of  railroad  property  in 
Ohio  until  1910.  It  constituted  the  county  auditors  of  the 
counties  through  which  a  railroad  ran  a  board  of  appraisers 
and  assessors  for  such  railroad.  They  were  to  ascertain 

"Act  of  April  5,  1859,  §  16.  2.  Swan  and  Critchfield,  1438.  Personal 
property  was  defined  to  include  "roadbed,  water  and  wood  stations,  and 
such  other  realty  as  is  necessary  to  the  daily  running  operations  of  the 
road,  moneys  and  credits  of  such  company  or  corporation." 

"Aud.  rep.  Exec.  Doc.,  1861,  II,  26. 

"Gov.  Mess.  E.VCC.  Doc..  1861,  I,  484. 

"Act  of  May  i,  1862.     O.  L.,  1862,  p.  88;  Swan  and  Sayler  766. 


318  FINANCIAL  HISTORY  OF  OHIO  [318 

the  value  of  the  personal  property  of  the  road  (defined  as 
in  the  previous  act),  and  apportion  it  among  the  counties 
according  to  the  value  of  the  real  estate.40  They  might 
require  from  the  officers  of  any  road  a  statement  under 
oath  as  to  the  property,  business,  etc.,  of  such  road;  and 
officers  of  roads  refusing  to  appear  before  the  board  of 
appraisers,  or  to  submit  books,  etc.,  should  be  judged  guilty 
of  a  misdemeanor  and  might  be  punished  by  imprisonment 
up  to  thirty  days  and  fine  up  to  $500.  The  procedure  of 
the  board  was  also  carefully  defined. 

The  auditor  of  a  county  in  which  a  railroad  had  its 
principal  office,  or  (in  case  the  principal  office  was  in  some 
other  state)  the  auditor  of  the  county  having  the  largest 
city  upon  the  road,  wras  president  of  the  board.  It  was 
his  duty  to  arrange  the  time  and  place  of  meeting,  and  to 
notify  the  other  members  of  the  board  at  least  five  days 
before  the  time  appointed  for  the  meeting.  Provision  was 
made  for  carrying  on  the  business  of  the  board  in  case  of 
the  absence  or  disability  of  the  president.  One  of  the 
members  was  to  be  appointed  secretary  and  a  full  record 
of  the  minutes  of  the  proceedings  must  be  kept.41  If  the 

<0By  act  of  April  14,  1863,  the  term  "personal  property"  was  enlarged 
so  as  to  include  also  the  undivided  profits,  reserved  or  contingent  funds, 
in  whatsoever  way  they  might  be  invested.  A  subsequent  act  further 
included  under  this  head  locomotives  and  cars  not  belonging  to  the  com- 
pany, but  hired  for  its  use  or  run  under  its  control  by  a  sleeping  car  or 
other  company.  For  the  convenience  of  railroads  this  property  might  be 
listed  and  valued  separately  from  its  own  property  by  the  board  of 
appraisers,  but  it  was  required  that  this  valuation  should  be  included  in 
the  aggregate  valuation. 

"These  provisions  as  enacted  in  1862  still  govern  the  procedure  in  the 
board,  but  in  the  last  respect  they  have  been  made  more  specific  by  the 
act  of  April  30,  1891.  This  act  enumerated  what  the  minutes  of  the  county 
auditors'  board  should  contain — that  they  should  consist  of  a  full  and 
complete  record  of  the  votes  of  each  member  of  the  board ;  that  the 
valuation  of  the  property  should  be  made  only  on  motion  offered  and 
duly  seconded,  and  that  on  all  such  motions  the  yeas  and  nays  should  be 
called  and  each  member's  vote  should  be  recorded  by  the  secretary;  that 
immediately  after  the  board's  adjournment  the  secretary  should  make  a 
complete  record  of  all  the  transactions  of  the  proceedings  of  the  board, 


319]  HISTORY   AND  TAXATION  OF  RAILROADS  319 

president  of  the  board  failed  to  call  a  meeting  before  the 
second  Tuesday  in  May,  the  several  county  auditors  were 
empowered  to  meet  on  that  day  in  the  proper  place  and 
proceed  to  ascertain  all  the  personal  property  of  the  rail- 
road under  consideration. 

The  boards  of  railroad  appraisers  and  assessors  were 
soon  supplemented  by  a  state  board  of  equalization  for 
railroads,  composed  of  the  state  auditor,  treasurer,  and 
attorney  general.42  At  an  annual  meeting  to  be  held  the 
last  Wednesday  in  July  at  the  office  of  the  auditor,  com- 
plaints were  to  be  heard  and  the  property  of  railroads 
equalized.  The  law  empowered  the  board  to  increase  or 
reduce  the  valuations  placed  on  individual  railroads,  but 
not  to  reduce  the  aggregate  valuation  below  that  returned 
by  the  county  boards  of  appraisers.43  There  was  evidently 
more  fear  of  evasion  of  taxes  than  of  injustice  to  the  rail- 
roads. In  practice  the  state  board  has  changed  the  valua- 
tions made  by  the  county  boards  but  slightly.  The  follow- 
ing table  shows  the  results  of  the  board's  work  for  five 
year  intervals  since  its  creation,  and  may  be  taken  as 
typical  (000  omitted)  : 


and  set  forth  therein  the  names  and  official  capacity  of  the  officials  of  the 
railroad  present  at  the  meeting  just  held;  and  that  a  certified  copy  of 
the  proceedings,  signed  by  the  president  and  secretary,  should  be  for- 
warded at  once  to  the  county  auditor  of  each  county  constituting  the 
board,  and  the  same  should  be  recorded  in  a  book  kept  in  the  county 
auditor's  office,  subject  to  the  inspection  of  any  person  during  office  hours. 
The  tax  commission  act  of  1910  changed  this  system.  See  below. 

"Act  of  April  u,  1865.  O.  L.,  1865,  p.  no. 

"This  original  law  has  been  but  slightly  modified.  The  date  of  the 
annual  meeting  has  been  changed  to  the  first  Wednesday  after  the  tenth 
day  of  June  (Act  of  April  2,  1866):  The  boards  of  county  appraisers 
were  required  to  send  immediately  after  their  adjournment  to  the  board 
of  equalization  all  the  reports  of  the  various  railroad  officers  and  such 
other  information  as  the  state  board  might  require  (Act  of  March  16, 
1867).  The  office  of  commissioner  of  railroads  and  telegraphs  was  created 
the  same  year,  and  this  official  was  made  a  member  of  the  board  of 
equalization  (Act  of  April  5,  1867). 


320 


FINANCIAL  HISTORY  OF  OHIO 


[320 


Year. 
1866  

Value  as  fixed 
by  Co.  boards. 

$  48,817 

Addi- 
tions. 
$886 

Deduc-  > 
tions. 
$679 

/alue  as  fixec 

by  state  b'ds 
$  49,024 

I 

Changes. 
2  add.  3  ded. 

1871  

64,545 

785 

453 

64,877 

7  add.  2  ded. 

1876  

83,917 

397 

184 

84,129 

3  add.  3  ded. 

1881  

83,597 

828 

661 

83,764 

6  add.  3  ded. 

1886  

89,273 

215 

172 

89,316 

4  add.  3  ded. 

1891  

104,954 

398 

457 

104,896 

7  add.  7  ded. 

1806.. 

104,984 

67 

35 

105,015 

3  add.  2  ded. 

IOOI  .  . 

116,891 

379 

376 

1  16,894 

6  add.  4  ded. 

1006.  . 

148,066 

6 

148,060 

o  add.  i  ded. 

1907  

152,403 

152,403 

o  add.  o  ded. 

1908.. 

156,096 

156,096 

o  add.  o  ded. 

IOOQ.  . 

isfofe 

i  $6.783 

o  add.  o  ded. 

This  method  of  assessing  railroads  did  not  long  go 
unchallenged,  and  the  criticisms  made  at  the  beginning 
have  been  constantly  reiterated  down  to  the  present  time. 

auditor  in  1864  objected  that  the  county  auditors  "are 
wholly  unacquainted  with  the  value  of  this  species  of  prop- 
erty; they  are  more  or  less  subject  to  local  influence  ..... 
The  result  is,  some  roads  are  appraised  too  high,  and  some 
too  low."44  And  two  years  later  he  again  criticized  the 
work  of  the  county  boards,  "who  know  little,  if  anything, 
of  the  value  of  that  species  of  property.  We  should  have 
direct  returns  under  oath  to  the  state  board  of  equaliza- 
tion."45 Fuller  criticism  of  this  plan  may,  however,  be 
reserved  till  later. 


CONSTRUCTION  AND  TAXATION  AFTER  THE  CIVIL  WAR. 

After  the  phenomenally  rapid  railroad  building  that 
took  place  in  Ohio  during  the  fifties,  the  growth  of  the 
railway  net  proceeded  more  slowly.  On  July  1,  1867,  the 
total  mileage  in  the  state  was  3,877.  Consolidations  were 
also  taking  place  and  the  railway  service  for  through  traffic 
was  being  greatly  improved.46  Competition  of  the  trunk 

"Exec.  Doc.,  1864,  I,  225. 
"Exec.  Doc.,  1866,  I,  134. 

"First  an.  rep.  Com'r  of  Railroads  and  Telegraphs.    Exec.  Doc.,  1867, 
I,  357- 


321]  HISTORY  AND  TAXATION  OF  RAILROADS  321 

lines  was  but  intensified  by  these  changes,  and  discrimina- 
tion in  rates  was  generally  practised.  An  effort  was  made 
to  end  this  by  the  passage  of  a  "long  and  short  haul"  act  in 
1871,  which  forbade  railroads  "to  charge  or  receive  for 
transportation  of  freight  for  any  distance  in  this  state,  a 
larger  sum  than  is  charged  by  the  same  railroad  for  the 
transportation  of  freight  of  the  same  class  or  kind,  for 
an  equal  or  greater  distance."47  The  penalty  for  infraction 
of  this  law  was  the  forfeiture  to  the  aggrieved  party  of 
double  the  amount  of  the  overcharge,  with  a  minimum  of 
$ 25.  The  act  was  primarily  designed  to  prevent  excessive 
charges  for  local  freight,  which  seemed  out  of  all  propor- 
tion when  compared  with  the  long-distance  charges,  which 
competition  was  rapidly  bringing  down.  Between  the 
years  1869  and  1881  the  number  of  tons  moved  one  mile 
in  Ohio  grew  from  739  to  3682  million,  while  the  ton-mile 
rate  decreased  from  2.446  to  .915  cents.48  It  was  estimated 
that  there  was  saved  to  the  shippers  over  $337,000,000, 
being  the  difference  between  the  actual  rates  and  those  of 
1869 ;  for  the  same  period  the  total  taxes  of  Ohio  amounted 
to  $316,000,000.  Unfortunately  for  the  implied  argument, 
the  savings  on  through  transportation  charges  did  not  go 
into  the  pockets  of  Ohio  tax-payers,  or  but  to  a  slight 
extent. 

The  law  of  1871,  moreover,  did  not  affect  its  purpose 
of  reducing  local  freight  charges  and  of  preventing  dis- 
crimination. The  commissioner  of  railroads  and  telegraphs 
directed  attention  to  a  large  number  of  "clear  and  palpable 
violations  of  the  law"  by  railroad  companies.  In  relation 
to  rates  prescribed  by  law  for  the  transportation  of  persons 
and  property  he  said, 

there  is  not  a  railroad  operated  in  the  state,  either  under  special  charter 
or  the  general  law,  upon  which  the  law  regulating  rates  is  not  in  some  way 
violated  nearly  every  time  a  regular  passenger,  or  freight,  or  mixed  train 
passes  over  it.49 

"Act  of  April  26,  1871.  O.  L.,  1871,  p.  78.  This  awkwardly  worded 
act  was  re-enacted  two  years  later  in  much  improved  phraseology.  Act 
of  March  n,  1872.  O.  L.,  1872,  p.  27. 

48Ringwalt,  Transportation  Systems  in  the  U.  S.,  p.  245. 

"Quoted  in  Gov,  Mess.  Exec.  Doc.,  1871,  II,  165. 


322  FINANCIAL  HISTORY  OP  OHIO  [322 

In  subsequent  reports  the  commissioner  turned  apologist 
for  the  railroads.  During  the  eight  years  1868-75  the  taxes 
paid  by  the  railroads  of  Ohio  amounted  to  2.988  per  cent, 
of  their  gross  earnings  in  the  state.  The  commissioner 
pointed  out  that  in  those  states  where  railroads  were  taxed 
on  the  basis  of  their  annual  incomes,  the  rule  was  to  take 
3  per  cent,  of  the  gross  income  as  the  value  of  the  road  for 
taxation;  he  concluded  therefore  that  the  Ohio  railroads 
bore  their  fair  share  of  taxation.50 

In  1872  the  legislature  passed  an  extraordinary  law, 
known  as  the  "Boesel  law",  which  authorized  "counties, 
cities,  incorporated  villages,  and  townships  to  build  rail- 
roads, and  to  lease  and  operate  the  same."51  There  was 
an  immediate  rush  on  the  part  of  these  local  units  of  gov- 
ernment to  avail  themselves  of  the  right  to  build  railroads, 
and  within  seven  months  bonds  to  the  amount  of  $2,685,050 
had  been  deposited  with  the  treasurer  of  state  for  this 
purpose;52  by  December  23  the  local  indebtedness  under 
the  Boesel  law  was  $3,177,000.53  The  following  year  the 
state  supreme  court  held  the  act  unconstitutional,  as  it 
contravened  section  6  of  Article  VIII,  but  before  that  the 
bonds  deposited  had  amounted  to  over  $6,000,000.54  This 
activity  certainly  evidenced  the  existence  of  a  widespread 
demand,  particularly  on  the  part  of  the  smaller  towns  and 
villages,  to  secure  better  railroad  facilities.  While  the 
method  outlined  by  the  Boesel  law  was  extremely  ill- 
advised,  it  yet  met  with  an  immediate  popular  response. 
Today  the  need  then  made  apparent  has  been  met  success- 
fully by  the  building  of  electric  interurban  lines,  which 
afford  the  needed  facilities  to  towns  neglected  by  the  steam 
roads.55 

""Reports.  Exec.  Doc.,  1874,  I,  791 ;  1875,  I,  894. 
"Act  of  April  23,   1872. 
KAud.  rep.  Exec.  Doc.,  1872,  II,  325. 
MGov.  Mess.,  Jan.,  1873.    Exec.  Doc.,  1872,  II,  557. 
"Rep.  Com'r  of  RR.  and  Telegr.  Exec.  Doc.,  1873,  I,  782. 
MSee  my  article  on    "Interurban   Railways   in   Ohio",   in  the  Journal 
of  Political  Economy,  May,  1907. 


323] 


HISTORY   AND  TAXATION  OF  RAILROADS 


323 


Meantime  the  methods  of  appraising  and  taxing  rail- 
road property  laid  down  by  the  laws  of  1862  and  1865  had 
remained  unchanged  in  spite  of  criticisms.  The  system  of 
local  assessment  by  boards  of  county  auditors  resulted  in 
an  undervaluation  of  railroad  as  compared  with  other  prop- 
erty, as  well  as  unequal  treatment  of  different  railroads. 
Between  1878  and  1892  the  changes  in  the  taxable  valuation 
and  the  gross  receipts  of  three  of  the  most  important  Ohio 
railroads  was  as  follows  :56 


Railroad. 
Lake  Shore  and  Mich.  So. 


Cleveland  and  Pittsburg. 


Gross 

Year. 

Valuation. 

Receipts. 

1878 

$12,996,609 

$13,505,159 

1892 

12,457,745 

22,415,382 

1878 

5,731,000 

2,272,166 

1892 

4,495,000 

3,429,278 

1878 

10,732,001 

7,830,000 

1892 

10,525,948 

11,659,142 

Pittsburg,  Fort  Wayne  and  Chicago. 


EXCISE  TAXATION,  1893-1911. 

In  1893  a  tax  commission  was  authorized  by  the  legis- 
lature57 and  appointed  by  the  governor,  "to  thoroughly 
investigate  the  whole  subject  of  taxation  in  the  state", 
among  which  the  taxation  of  railways  came  in  for  its  due 
share  of  attention.  The  commission  concluded  that  the 
true  value  of  the  railroads  in  the  state  could  most  justly 
be  estimated  by  capitalizing  the  net  earnings  at  6  per  cent. 
Upon  this  basis  they  found  the  true  value  in  Ohio  of  the 
two  first  roads  named  above  to  be,  respectively,  $32,598,273, 
and  $16,031,438.58  From  these  and  other  facts  they  con- 
cluded that  the  railways  of  the  state  paid  taxes  upon  a 
valuation  of  from  25  to  30  per  cent,  of  their  real  value, 
while  other  property  paid  on  a  valuation  of  about  50  to  60 
per  cent.  The  total  assessed  value  of  railways  was  only 
1105,000,000,  while  that  of  horses  alone  was  $47,000,000,  or 
almost  half  as  much.  It  was  evident  that,  from  whatever 

"Rep.  Tax  Commission,  1893,  p.  52. 
"Jt.  Res.  Gen.  Ass.,  June  19,  1895. 
"Rep.,  p.  55- 


324  FINANCIAL  HISTORY  OF  OHIO  [324 

point  of  view  the  subject  was  studied,  the  railways  were 
paying  less  than  their  fair  share  of  taxes  to  the  state.  To 
remedy  this,  it  was  suggested  that  a  franchise  tax  be  levied, 
in  addition  to  existing  taxes,  based  upon  the  gross  earnings 
within  the  state. 

Acting  upon  this  advice  the  general  assembly  the  fol- 
lowing year  imposed  an  excise  tax  of  one  per  cent,  on  the 
capital  of  sleeping  car  companies,  estimating  the  capital 
in  Ohio  according  to  the  proportion  in  the  state  of  the  total 
lines  over  which  the  cars  ran.59  In  1895  a  similar  excise 
tax  of  one-half  of  one  per  cent,  was  exacted  of  all  railroads 
in  the  state,  based  upon  that  proportion  of  the  gross  earn- 
ings which  the  mileage  within  the  state  bears  to  the  total 
mileage.  This  tax  was  increased  in  1901  to  one  per  cent. 
The  interurban  electric  railways,  which  had  developed  very 
rapidly  in  the  previous  half  decade,  were  by  an  act  of 
1904  to  be  assessed  in  the  same  manner  as  steam  railways, 
that  is  by  the  auditors  of  the  counties  through  which  they 
passed  acting  as  a  board  of  appraisers  and  assessors.60 

A  vigorous  protest  was  made  in  1901  before  the  state 
board  of  equalization  under  the  leadership  of  Tom  L.  John- 
son, mayor  of  Cleveland,  against  the  inequalities  in  rail- 
road taxation.  A  carefully  prepared  brief  was  presented 
showing  that  the  railroads  of  Ohio  were  appraised  for 
valuation  at  only  21.9  per  cent,  of  their  market  value,  and 
that  even  with  the  excise  tax  of  one-half  of  one  per  cent, 
the  rate  of  taxation  per  $1000  was  only  $2.36  for  the  rail- 
roads in  comparison  with  an  average  rate  of  $2.45  on  all 
other  property.61  A  strong  effort  was  then  made  to  secure 
an  increase  by  the  board  of  equalization  in  the  aggregate 
valuation  of  railroads.  Attorney  General  Shields  main- 
tained, however,  that  the  board  had  no  legal  right  to  in- 
crease the  total  appraisement  made  by  the  county  boards 

"Act  of  May  21,  1894.  O.  L.,  1894,  p.  408;  Laning's  Rev.  Stat.  (1906), 
sec.  4126. 

"Act  of  April  25,  1904.  O.  L.,  1904,  p.  572. 

"Report  of  Prof.  Edward  W.  Bemis  on  the  True  Value  of  Ohio  Rail- 
roads for  the  Purpose  of  Taxation.  Privately  printed  (Cleveland,  O.).  P.  I. 


325]  HISTORY   AND  TAXATION  OF  RAILROADS  325 

of  appraisers.  The  railroads  also  filed  a  reply  in  which 
they  asserted  that  the  state  board  of  equalization  was 
appointed  merely  to  equalize  the  appraisals  made  by  the 
county  boards,  and  that  if  they  increased  the  aggregate 
valuation  they  ceased  to  be  a  board  of  equalization  and 
became  one  of  original  appraisement.  The  right  of  the 
state  board  of  equalization  to  alter  the  aggregate  valuation 
has,  as  a  matter  of  fact,  never  been  established  by  any 
decision.62  Although  this  effort  failed,  the  excise  tax  was 
doubled  this  year  by  the  general  assembly,  thus  compen- 
sating for  the  low  local  assessments.63  As  a  result  of  the 
agitation  and  publicity  moreover  several  of  the  county 
auditors  refused,  under  political  necessity,  to  receive  passes 
from  the  railroads  which  they  were  sworn  to  assess  at  their 
"true  value  in  money."  The  methods  and  conditions  under 
which  the  work  of  assessment  were  usually  carried  on  are 
so  well  described  in  the  following  typical  account  that  it 
is  quoted  at  length  :64 

The  Cleveland  end  of  the  county  auditors'  annual  entertainment  by 
the  steam  railroads  is  over  until  another  year.  Yesterday  another  board 
of  county  auditors  paused  long  enough  in  the  round  of  pleasure  occasioned 
by  their  Cleveland  trip  to  appraise  the  Lake  Shore  Railroad.  When  this 
was  done,  the  transaction  requiring  only  a  little  more  than  an  hour  to 
accomplish,  the  last  board  of  railway  assessors  to  meet  in  Cleveland  this 
spring  adjourned. 

When  the  auditors  composing  the  board  met  about  a  half  hour  after 
their  adjournment  yesterday  it  was  not  on  business  that  they  were  bent. 

*2The  dictum  of  the  attorney  general  and  the  caveat  of  the  railroads 
both  seem  to  the  writer  unwarranted  in  law,  for  the  act  creating  the  state 
board  of  equalization  provided  only  that  they  should  not  reduce  the 
aggregate  valuation  originally  made  by  the  county  boards,  thereby  giving 
them  authority,  by  implication,  to  raise  the  aggregate  valuation. 

""In  spite  of  the  low  local  assessments,  the  taxes  per  mile  of  line  in 
Ohio  were  exceeded  in  1900  by  those  of  only  nine  other  states,  of  which 
seven  were  in  the  East,  the  other  two  being  Indiana  and  Illinois.  Pro- 
fessor Bemis,  in  his  Report,  based  his  contention  of  the  undervaluation 
of  the  Ohio  railroads  upon  a  comparison  with  the  two  neighboring  states. 
The  taxes  were  $304  per  mile  in  Ohio,  $374  in  Illinois,  and  $403  in  Indiana. 
Cf.  Interstate  Commerce  Commission  Report,  1900,  p.  97;  Seligman,  Essays 
in  Taxation,  p.  142. 

"Cleveland  Plain  Dealer,  May  21,  1904. 


326  FINANCIAL  HISTORY  OF  OHIO  [326 

It  was  to  do  full  justice  to  an  ample  banquet  tendered  by  a  grateful  rail- 
road to  its  late  judges.  It  took  longer  to  dispose  of  this  part  of  the  day's 
business  than  to  appraise  a  railroad  worth,  according  to  its  own  tax 
return,  $14,500,000  and,  according  to  Prof.  E.  W.  Berais,  between  $60,000,000 
and  $90,000,000.  Bemis  was  denied  a  hearing,  however. 

One  of  the  brightest  spots  in  the  life  of  the  average  auditor  is 
when  he  rides  to  Cleveland  or  some  other  city,  on  transportation  abun- 
dantly provided  by  a  generous  and  expectant  railroad  company,  to  fix 
by  his  vote  the  amount  of  taxes  which  that  railroad  will  pay  during  the 
ensuing  year. 

"What  can  we  do?"  asked  a  rural  auditor  yesterday.     "The  minute 

we  strike  town  the  railroad  has  a  man  on  hand  to  meet  us  and  show  us 

around.     And  does  a  railroad  know  how  to  show  a  man  a  good  time? 

Well,  I  guess  so.     They're  princes,  that's  what  they  are.     Everything  the 

very  finest,  too.    I  don't  think  I'll  be  able  to  eat  anything  now  for  a  week." 

The  meeting  at  which  this  auditor  assisted  in  valuing  the  company 
whose  powers  of  entertaining  he  praised  so  highly,  was  held  this  week. 
The  auditor  arrived  in  Cleveland  on  the  evening  of  the  day  before  the 
meet;ng.  That  night  he,  accompanied  by  a  number  of  fellow  visiting 
auditors,  was  taken  in  tow  by  the  agent  of  the  railroad  to  assess  which 
was  the  common  errand  of  them  all.  The  agent  was  a  good  fellow.  So 
were  the  auditors.  Dinner,  the  theater  and  an  evening  of  pleasant  enter- 
tainment, such  was  the  study  and  preparation  given  by  the  auditors  to 
the  work  expected  of  them  as  public  officials  the  next  day. 

"What  do  we  know  of  the  value  of  different  styles  of  locomotives, 
or  the  depreciation  which  rolling  stock  suffers  by  a  year  of  usage?"  quoth 
the  auditor,  who  happened  to  be  a  most  competent  and  intelligent  public 
official  and  one  whose  word  on  the  value  of  farming  implements  or  the 
respective  merits  and  demerits  of  different  breeds  of  cattle  is  worth  its 
weight  in  gold  in  his  own  community.  "The  railroad  gets  us  all  here ; 
we  are  up  against  a  problem  with  which  we  are  utterly  incapable  of 
wrestling.  What  do  we  do?  Why,  what  can  we  do?  The  railroad  com- 
pany says  a  certain  thing  is  so  and  so,  and,  unless  we  happen  to  know 
otherwise — which  is  a  very  rare  occurrence — we  take  their  word  for  it. 
All  we  know  when  we  sit  down  there  to  appraise  a  railroad  is  what  the 
company's  agent  has  been  pouring  in  our  ears.  He  has  shown  himself  to 
be  straightforward  and  generous  in  his  dealing  with  us  and  his  word  is 
all  we  have.  Generally  it  goes." 

At  the  close  of  the  meetings,  to  appraise  the  road,  and  the  meetings 
never  last  over  two  hours,  after  Auditor  Wright  has  hurled  a  few  fare- 
well shots  at  his  colleagues,  the  auditors  hasten  to  a  hotel,  where  there  is 
a  'steen  course  dinner.  In  the  evening  this  is  repeated  and  there  are 
smokers  galore.  In  the  case  of  one  railroad  assessed  this  week,  the 
evening's  entertainment  was  furnished  by  the  company  at  one  of  its  private 
cars  which  was  side  tracked  conveniently  in  the  down  town  yards. 


n 


327]  HISTORY   AND  TAXATION  OF  RAILROADS  327 

The  series  of  meetings  just  closed  has  been  marked  by  one  distinctive 
feature.  This  is  the  fearlessness  which  several  auditors  showed  in  voting 
for  large  increases.  In  not  a  few  instances  substantial  boosts  to  railroad's 
valuation  have  been  almost  carried,  a  very  small  majority  alone  defeating 
them.  In  one  or  two  cases  a  tie  vote  has  defeated  a  motion  to  increase  the 
company's  return.  Several  auditors  have  consistently  voted  at  all  the 
meetings  they  attended  for  every  proposition  to  increase  which  came  before 
the  board.  In  many  cases  petty  differences  between  various  auditors  have 
prevented  additions  which  various  auditors  wanted  to  go  through  for  the 
benefit  of  their  particular  counties. 

But  anyway,  the  auditors,  with  the  exception  of  a  few  like  Auditor 
Wright  of  this  county,  who  objected  to  being  made  the  recipients  of  small 
gratuities  by  the  railroads,  have  all  had  a  real  good  time,  a  pleasure  outing, 
and  a  round  of  enjoyable  experiences. 

The  increased  agitation  and  interest  in  the  subject 
of  taxation  led  in  1906  to  the  appointment  of  a  second  tax 
commission  to  investigate  the  existing  system  and  recom- 
mend changes.65  Among  the  recommendations  made  was 

a  simpler  and  more  modern  method  of  taxing  public  service  corporations, 
such  as  by  gross  receipts  or  other  special  charge,  in  lieu  of  all  other  taxes, 
which  will  more  effectively  and  uniformily  reach  franchise  values  and  be 
substituted  for  the  complex,  diverse  and  inadequate  methods  now  prevail- 
ing in  Ohio.6* 

This  was  secured  in  1910  by  the  creation  of  a  permanent 
tax  commission,  to  which  was  given  the  duty  of  assessing 
the  public  service  and  other  corporations  in  the  state. 

Their  most  important  function,  for  the  present  at  least, 
is  to  consist  in  the  assessment  of  railroads,  express,  tele- 
graph, and  telephone  companies,  sleeping  car,  freight  line, 
and  equipment  companies,  and  other  public  utilities,  which 
had  previously  been  assessed  by  a  number  of  special  boards. 
For  instance,  railroads  had  been  assessed  by  the  county 
auditors,  and  the  others  by  state  boards ;  the  taxes  on  public 
service  corporations  had  been  collected  by  the  auditor,  the 
excise  tax  on  other  corporations  had  been  collected  by  the 
secretary  of  state,  and  other  taxes  had  been  paid  to  the 
state  treasurer.  All  the  machinery  for  the  assessment  of 
these  various  taxes  is  now  concentrated  in  the  hands  of 

"The  commission  was  appointed  on   Sept.  21,   1006,  and  made  their 
report  on  Jan.  10,  1908. 
"Report,  p.  45. 


328  FINANCIAL  HISTORY  OF  OHIO  [328 

the  tax  commission,  while  all  taxes  are  to  be  paid  directly 
to  the  state  treasurer. 

After  the  value  of  the  property  of  public  service  cor- 
porations is  assessed  by  the  commission,  the  valuations  are 
apportioned  to  the  local  taxing  districts  in  which  they  are 
situated.  In  the  case  of  express,  telegraph,  and  telephone 
companies,  the  value  of  their  property  is  to  be  determined 
by  the  value  of  their  capital  stock  in  accordance  with  cer- 
tain rules ;  from  the  value  so  determined  is  to  be  deducted 
the  value  of  real  estate  already  taxed.  In  the  case  of  other 
public  utilities  "all  the  personal  property  thereof,  which 
shall  include  all  real  estate  necessary  to  the  daily  opera- 
tions of  the  public  utility  and  money  and  credits  within 
the  state"  is  to  be  assessed  by  the  commission,  and  in 
addition  detailed  statement  of  the  various  kinds  of  tangible 
property  must  be  made  by  the  corporations. 

At  the  same  time  that  the  machinery  of  assessment 
was  simplified  and  unified,  the  principle  of  differentiation 
was  introduced  in  the  taxation  of  corporations.  Previously 
all  the  public  service  utilities  had  paid  the  same  excise  tax 
of  one  per  cent,  of  their  gross  receipts  earned  within  the 
state;  this  large  class  was  now  broken  up  into  smaller 
groups,  upon  each  of  which  was  laid  a  different  rate.67 
Railroad  and  pipe  line  companies  are  taxed  four  per  cent, 
of  their  intra-state  gross  receipts;  express  and  telegraph 
companies,  two  per  cent;  and  street,  surburban  and  inter- 
urban  railroad  companies,  electric  light,  gas,  natural  gas, 
water  works,  telephone,  messenger  or  signal,  union  depot, 
heating  or  cooling,  and  water  transportation  companies, 
1.2  per  cent,  of  such  gross  earnings  or  receipts.  The  com- 
panies in  the  last  two  groups  are  also  subject  to  the  assess- 
ment and  taxation  of  their  property  in  the  usual  manner. 
Sleeping  car,  freight  line  and  equivalent  companies  are 
also  taxed  1.2  per  cent,  on  the  proportion  of  their  capital 

"Owing  to  the  constitutional  requirement  of  uniform  treatment  of  all 
forms  of  property,  corporate  and  individual,  corporation  taxes  as  such 
may  not  be  imposed  in  Ohio,  but  excise  taxes  for  the  privilege  of  carrying 
on  their  business  within  the  state  are  exacted  of  public  utilities. 


329]  HISTORY   AND  TAXATION  OF  RAILROADS  329 

stock  adjudged  by  the  commission  to  represent  the  capital 
and  property  of  each  company  owned  and  used  in  Ohio, 
after  deducting  the  value  of  all  real  estate  taxed  locally  in 
Ohio.  The  differentiation  in  rates  thus  introduced  was 
fully  justified  on  the  ground  of  difference  in  character,  and 
the  increase  in  rate  was  defended  on  the  ground  that  it 
now  applied  strictly  to  intra-state  business  only,  which  was 
more  carefully  defined.  Moreover,  some  new  utilities,  like 
union  depot  companies,  were  now  for  the  first  time  sub- 
jected to  taxation. 

The  act  of  May  10,  1910,  had  changed  the  basis  for 
determining  the  amount  of  the  excise  taxes  payable  by 
railroads,  substituting  a  tax  of  4  per  cent,  on  the  gross 
earnings  from  intra-state  business  for  the  old  tax  of  1  per 
cent,  on  that  proportion  of  their  total  gross  earnings  repre- 
sented by  their  mileage  in  Ohio.  As  many  of  the  railroads 
could  not  state  their  intra-state  earnings,  owing  to  the 
short  time  since  the  passage  of  the  act,  the  commission 
accepted  from  such  companies  an  estimate  of  their  intra- 
state  earnings,  based  upon  the  mileage  principle.  Even 
under  this  arrangement  the  assessed  basis  of  taxation  for 
railroads  was  increased  some  $20,000,000,  or  about  100  per 
cent.  The  increase  in  the  taxable  basis  of  all  other  public 
utilities  amounted  to  $634,000,  or  8.4  per  cent.  As  a  re- 
sult of  the  greater  care  and  thoroughness  exercised  by  the 
commission  the  state  revenues  from  these  sources  and  from 
the  franchise  taxes  upon  foreign  corporations  were  in- 
creased over  $550,000. 

Owing  to  the  fact  that  the  taxable  values  of  railroads 
have  been  distributed  among  the  local  taxing  districts  for 
purposes  of  taxation,  no  statistics  exist  in  Ohio  which  show 
for  each  year  the  aggregate  taxes  on  railroads.  Hereafter, 
we  may  expect  to  have  these. 


CHAPTER  VII 
BUSINESS  AND  MISCELLANEOUS  TAXATION. 

LOTTERIES. 

Lotteries  were  not  infrequently  resorted  to  in  the  days 
of  early  state  finance1  to  raise  funds  for  special  purposes, 
and  Ohio  was  no  exception  to  the  general  rule.  During  the 
session  of  1806-7  the  legislature  passed  an  act  authorizing 
a  lottery  to  raise  money  to  build  a  bridge  across  the  mouth 
of  the  Muskingum  River,2  but  it  did  not  succeed.3  At  the 
same  time  private  lotteries  were  forbidden.4  Six  years 
later  it  was  provided  that  all  lottery  tickets  heretofore 
issued  by  the  authority  of  the  state  should  be  negotiable.5 
Practically  all  the  lotteries  authorized  by  the  state  were 
for  educational  or  public  purposes ;  in  1817  the  legislature 
authorized  one  for  the  benefit  of  the  Ohio  University.6  In 
1824  the  sale  of  unauthorized  lottery  tickets  was  forbidden, 
and  in  1830  an  act  was  passed  to  prevent  lotteries.  Ap- 
parently, however,  this  did  not  mark  their  end,  for  another 
and  final  act  was  passed  in  1851  prohibiting  lotteries.7 
They  do  not  appear  again  in  the  legislative  records,  as  the 
constitution  of  1851  absolutely  prohibited  them.8 

BANKS. 

Banks  were  the  first  corporations  to  be  subjected  to 
taxation  by  the  Ohio  legislature,  the  first  act  taxing  them 

*Cf.  Ely,  Taxation  in  American  States  and  Cities,  p.  113;  McMaster, 
History  of  the  People  of  the  U.  S.,  I,  Index. 

"Ho.  /.,  1806-7,  p.  172. 

3T.  Flint :  Western  States,  II,  391. 

4Act  of  Jan.  30,  1807. 

"Act  of  Jan.  8,  1813.  Chase,  in  his  Statutes  of  Ohio,  says  Ohio  resorted 
to  lotteries  only  once,  but  this  subsequent  legislation  seems  to  disprove 
this  statement. 

'Act  of  Dec.  29,  1817.     Ho.  J '.,  1817-18,  p.  149. 

'Acts  of  Feb.  10,  1824;  Feb.  22,  1830;  March  8  and  24,  1851. 

'"Lotteries,  and  the  sale  of  lottery  tickets,  for  any  purpose  whatever, 
shall  forever  be  prohibited  in  this  state."  Art.  XV,  sec.  6. 


331]  BUSINESS  AND  MISCELLANEOUS  TAXES  331 

being  passed  in  1815.9  As  the  history  of  bank  taxation  is 
so  important  it  has  been  treated  more  fully  in  another 
place.10 

AUCTIONEERS  AND  SALES  AT  AUCTION. 

Another  source  of  revenue  was  tapped  in  1818,  by  an 
act  which  levied  a  tax  of  three  per  cent,  on  the  net  amount 
of  sales  at  auction;11  it  was  limited,  however,  to  goods  and 
merchandize,  the  growth,  product  or  manufacture  of  any 
foreign  country.  Sales  of  insolvent  estates,  of  executors 
or  administrators,  or  on  execution,  were  exempt.  One- 
third  of  the  receipts  from  the  tax  were  to  go  to  the  county 
in  which  the  auction  was  held,  and  the  remainder  to  the 
state.  The  court  of  common  pleas  was  to  appoint  auc- 
tioneers, who  should  give  bonds,  and  pay  a  license  tax  of 
$20  a  year.  An  amendment  of  February  18, 1824,  made  all 
goods  sold  at  auction  subject  to  the  law,  and  gave  the  whole 
amount  of  the  tax  to  the  state ;  the  proceeds  were  set  aside 
as  a  literary  fund,  except  that  in  Hamilton  county  one-half 
was  to  go  to  the  Commercial  Hospital  and  Lunatic  Asylum 
of  Ohio.  In  1829  stock  and  fanning  utilities  and  manu- 
factured goods  made  by  individuals  in  their  homes  or  by 
societies  were  exempted  from  the  operation  of  this  tax.12 
In  1831  the  legislature  again  revised  the  law  on  this  sub- 
ject.13 The  former  exemptions  were  removed,  and  all  prop- 
erty sold  at  auction  was  divided  into  three  classes:  the  first 
paid  one  per  cent. ;  the  second,  one  and  one-half  per  cent. ; 
and  the  third,  two  per  cent.  The  license  tax  on  auctioneers 
was  to  be  fixed  by  the  court,  not  to  exceed  $500  a  year,  but 
the  disposition  of  the  proceeds  of  the  tax  remained  the 
same.  By  further  amendments  of  1834  and  1835  a  fourth 
class  was  introduced  on  which  the  tax  should  be  three- 
quarters  of  one  per  cent.14  The  existing  legislation  was 

'Act  of  February  8,  1815.    Ho.  ].,  1814,  p.  142. 

"See  Ch.  V,   History  of  Banks  and  Bank  Taxation. 

"Act  of  January  30,  1818;  in  effect  May  I. 

"Act  of  January  19,  1829. 

"Act  of  March  14,  1831.    Chase,  Ohio  Statutes,  III,  1822. 

"Acts  of  January  2,  1834,  and  March  4,  1835. 


332  FINANCIAL  HISTORY  OF  OHIO  [332 

codified  in  1840,  but  no  changes  made  in  the  law  except  to 
exempt  judicial  sales.15  No  further  legislation  was  passed 
on  this  subject  until  1875,  when  the  appointment  of 
auctioneers  and  the  determination  of  the  rate  of  the  license 
tax  were  left  to  the  court  of  common  pleas.16  Since  that 
date  no  change  has  been  made.17  The  law  therefore  stands 
today  substantially  as  it  was  first  enacted  in  1818,  the  only 
important  amendment  having  been  that  of  1831.  For  the 
year  ending  November  15,  1909,  the  receipts  to  the  state 
were  |85.67  from  this  source. 

INCOME  TAX  ON  LAWYERS  AND  PHYSICIANS. 

In  1825  the  first  and  only  income  tax  ever  imposed  by 
the  state  of  Ohio  was  laid  on  attorneys  and  counsellors  at 
law  and  physicians  and  surgeons  who  had  been  practising 
over  two  years.  The  court  of  common  pleas  was  to  list 
them  annually  on  the  tax  duplicates  at  from  $5  to  $50  and 
they  were  to  be  taxed  on  these  amounts.18  In  1830  the  tax 
was  made  directly  upon  incomes,  and  called  for  an  annual 
tax  of  not  over  $5  upon  the  incomes  of  lawyers  and  physi- 
cians.19 The  assessors  of  the  counties  were  to  make  a  list 
of  the  lawyers  and  physicians  and  report  them  to  the 
county  commissioners,  who  were  to  rate  them  for  taxation. 
The  law  remained  in  force  until  the  adoption  of  the  new 
constitution,  when  it  was  repealed.20  It  was  of  little  sig- 
nificance as  a  revenue  producer,  but  served  to  secure  the 
registration  of  the  lawyers  and  physicians  in  the  state. 
The  state  received  only  a  very  meager  revenue  from  this 
source,  the  largest  amount  being  $7301  in  1851.21 


"Act  of  March  16,  1840. 

"Act  of  March  20,  1875-72.    0.  L.,  p.  66. 

"Rev.  Stat.,  4222-4238. 

"Act  of  Feb.  7,  1825;  in  effect  March  i,  1826. 

"Act  of  Feb.  22,  1830. 

"Act  of  March  18,  1852. 

"For  complete  receipts  see  Ch.  II,  appendix,  Table  II. 


333]  BUSINESS  AND  MISCELLANEOUS  TAXES  333 

TAX  ON  BROKERS. 

The  act  of  February  3,  1825,  which  initiated  in  a  very 
partial  manner  the  general  property  tax  in  place  of  the  old 
tax  on  lands,  also  imposed  taxes  upon  merchants  and  ex- 
change brokers.  The  latter  were  divided  into  three  classes 
for  purposes  of  taxation,  and  their  capital  arbitrarily  listed 
at  the  amounts  assigned  to  these  classes:  those  with  a 
capital  of  $60,000;  those  with  a  capital  of  $30,000;  and 
those  with  a  capital  of  $15,000.  The  associate  judges  of 
each  county  were  to  list  and  class  exchange  brokers  by 
June  1  of  each  year  and  deliver  the  list  to  the  assessor,22 
who  were  then  to  assess  them  on  this  basis  at  the  rate  of 
the  general  property  tax.  The  attempt  to  classify  exchange 
brokers  was  given  up  in  the  act  of  March  14,  1831,  which 
directed  that  they  were  to  be  taxed  according  to  the  value 
of  the  stock  in  trade  used.  This  was  further  amended  by 
the  act  of  March  21,  1840,  which  provided  for  taxing  the 
capital  of  exchange  brokers  and  stock  jobbers;  their  cap- 
ital was  to  be  placed  on  the  grand  list  for  taxation  for  state 
and  local  purposes. 

Money  brokers  were  taxed,  by  the  act  of  March  12, 
1845,  one-eighth  of  one  per  cent,  annually  on  all  money 
bought  and  sold ;  they  were  required  to  take  out  an  annual 
license.  By  an  act  passed  the  following  day  they  were 
permitted  to  set  off  their  debts  against  their  credits.  The 
following  year  money  brokers  were  again  required  to  take 
out  a  license  and  were  taxed  according  to  the  amount  of 
their  business.23  The  broker  was  required  to  take  an  oath 
as  to  the  amount  of  money  lie  believed  he  would  employ 
during  the  year  next  ensuing.  Under  such  a  naive  law  a 
great  many  pessimists  as  to  their  business  outlook  must 
have  developed  in  Ohio.  The  classification  and  grading  of 

"The  amendment  of  Jan.  17,  1826,  gave  the  duty  of  listing  and  classing 
to  the  assessor,  who  must  file  the  list  with  the  clerk  of  the  court  of 
common  pleas. 

BAct  of  March  2,  1846.  By  act  of  March  19,  1849,  this  law  was 
extended  to  stock  brokers. 


334  FINANCIAL  HISTORY  OF  OHIO  [334 

the  tax  was  also  very  clumsy  and  inequitable;  it  was  as 
follows : 

Amount  of  Annual 

Business.  Tax. 

Under  $10,000 $60 

$10,000 — 20,000 120 

20,000 —  30,000 180 

30,000 —  40,000 240 

40,000 —  50,000 , 300 

Over  $50,000,  $6.00  on  each  additional  $1000  plus  the 
previous  tax. 

It  will  be  noticed  that  the  tax  amounted  to  f  6.00  on  each 
f  1000  for  the  highest  members  of  the  class,  but  was  regres- 
sive within  the  class,  being  much  heavier  on  the  lowest 
members  of  the  group,  since  the  tax  was  a  fixed  sum  for 
every  one  within  the  group.  Fortunately  this  law  was 
repealed  after  three  years,24  and  money  brokers  were  taxed 
like  other  individuals  under  the  general  property  tax. 

By  the  act  of  April  13,  1852,  exchange  brokers  and 
stock  jobbers  were  grouped  with  bankers  and  were  taxed 
on  the  average  value  of  all  moneys,  stocks,  etc.,  during  the 
past  year,  at  the  same  rate  as  the  property  of  individuals ; 
property  so  listed  to  be  subject  to  all  taxes  for  state  and 
local  purposes.  No  change  was  made  by  the  act  of  April  5, 
1859,  but  after  that  date  the  specific  mention  of  brokers  as 
subjects  of  taxation  disappeared  from  the  laws. 

TAX  ON  MERCHANTS  AND  MANUFACTURERS. 

In  casting  about  for  additional  sources  of  revenue  to 
meet  the  proposed  expenditures  for  internal  improvements 
the  governor  suggested  the  capital  employed  in  mercantile 
business.25  This  he  estimated  at  $3,000,000,  yielding  an 
annual  profit  of  about  $375,000,  which  he  thought  could 
bear  a  tax  of  four  per  cent.,  and  thus  produce  to  the  state 
the  sum  of  f  15,000  annually.  The  act  of  February  3,  1825, 
accordingly  levied  a  tax  on  the  capital  of  all  merchants 

"Act  of  March  20,  1849. 

*Gov.  Mess.,  Ho.  J '.,  1821-22,  p.  44. 


335]  BUSINESS  AND  MISCELLANEOUS  TAXES  335 

employed  within  the  state.  Merchants  were  divided  into 
eight  classes  and  were  taxed  on  the  amount  of  capital 
assigned  to  the  class  in  which  they  were  placed.  The 
classes  and  the  amounts  of  capital  assigned  to  each  were 
as  follows: 

Class  I $50,000  capital 

Class  2 40,000  capital 

Class  3 30,000  capital 

Class  4 20,000  capital 

Class  5 15,000  capital 

Class  6 10,000  capital 

Class  7 5,ooo  capital 

Class  8 2,500  capital 

The  associate  judges  of  each  county  were  given  the  duty  of 
listing  and  classing  the  merchants  and  of  delivering  the 
lists  to  the  assessor.26  Aggrieved  merchants  were  given  the 
right  of  appeal  to  the  board  of  equalization,  who  might 
order  a  change  of  class.  Two  years  later  all  merchants 
dealing  exclusively  in  goods  or  merchandize  of  the  growth 
or  manufacture  of  Ohio,  and  employing  less  than  $200 
stock  in  trade,  were  exempted  from  taxation.27  This  was 
quite  in  line  with  the  general  tax  policy  of  the  state  during 
this  period,  when  the  tax  machinery  was  used  as  a  means 
of  granting  favors,  of  encouraging  particular  industries, 
and  of  retaliation  and  suppression.  The  attempt  to  classify 
merchants  was  given  up  in  the  act  of  March  14, 1831,  which 
simply  taxed  "according  to  the  value  of  the  stock  in  trade 
used";  but  the  same  exemption  given  by  the  act  of  1827 
to  small  merchants,  trading  in  Ohio  products,  was  con- 
tinued. With  the  introduction  of  the  general  property  tax 

"An  amendment  of  Jan.  17,  1826,  assigned  the  duty  of  listing  and 
classifying  to  the  assessor,  who  must  file  his  list  with  the  clerk  of  the 
court  of  common  pleas. 

"Act  of  Jan.  31,  1827,  §9.  "Where  payment  of  the  tax  on  merchants 
was  resisted  on  the  ground  that  the  merchandize  taxed  was  the  growth 
or  manufacture  of  foreign  countries  and  other  states,  and  was  not  there- 
fore constitutionally  subject  to  taxation  by  state  authority,  the  court  over- 
ruled the  objection  and  sustained  the  constitutionality  of  the  law."  Raguet 
v.  Wade,  4  Ohio  Rep.,  107,  cited  by  Chase,  Ohio  Statutes,  II,  1478  n. 


336  FINANCIAL  HISTORY  OF  OHIO  [336 

in  1846,  merchants  and  manufacturers  were  taxed  on  the 
value  of  their  property  like  individuals,  and  this  principle 
has  since  been  continued.28 

Manufacturers  were  not  subjected  to  taxation  until 
1831,  the  general  policy  of  favoring  these  enterprises  not 
permitting  the  imposition  of  any  tax  burdens  upon  them 
before  this  time.  By  the  act  of  March  14,  1831,  a  number 
of  industries,  hitherto  exempt,  were  enumerated  as  being 
specifically  subject  to  taxation;  these  were:  "all  grist,  oil, 
and  saw  mills;  all  manufactories  of  iron,  glass,  paper, 
clocks,  and  nails ;  all  distilleries,  breweries  and  tanneries ; 
all  iron,  brass  and  copper  founderies;  ...  all  stocks 
or  capital  invested  in  steamboats  .  .  ."  These  were 
taxed  at  the  ordinary  rate  of  taxation.  In  the  subsequent 
acts  of  1846,  1852,  1859,  and  1878,  manufacturers  were 
grouped  with  merchants  and  were  taxed  on  the  average 
value  of  all  their  property  during  the  previous  year.  The 
law  is  substantially  the  same  today,  merchants  and  manu- 
facturers listing  their  stocks  as  personal  property,  to  be 
taxed  for  general  state  and  local  purposes  under  the  gen- 
eral property  tax  rate.29  It  shall  be  listed  in  the  township, 
city  or  village  in  which  it  is  situated.  All  other  personal 
property  is  listed  at  the  residence  of  the  owner.30 

INSURANCE  COMPANIES. 

The  first  law  laying  a  tax  on  insurance  companies  in 
Ohio  seems  to  have  been  that  of  February  22,  1830.  By 
this  act  domestic  insurance  companies  were  required  to 
pay  four  per  cent,  of, their  dividends;  foreign  insurance 
companies  paid  an  annual  license  fee  of  $50  for  each  agency 
and  also  four  per  cent,  of  the  profits  of  such  agencies;  if, 
however,  the  tax  on  the  profits  exceeded  $50,  then  the 
amount  of  the  license  was  to  be  subtracted.  This  act  was 
repealed  the  following  year  and  the  "act  to  tax  bank,  in- 
surance, and  bridge  companies"  levied  a  tax  of  five  per  cent. 

"Acts  of  March  2,  1846;  April  13,  1852;  April  5,  1859. 
"R.  S.  §  2740-2742. 

a>n>      o     g  O--JE 
K.  O.   8  2/35. 


337]  BUSINESS  AND  MISCELLANEOUS  TAXES  337 

on  the  dividends.  Foreign  insurance  companies  were  re- 
quired to  pay  six  per  cent,  of  the  profit  on  premiums  re- 
ceived in  the  state.31  The  revenues  from  the  taxes  on  in- 
surance companies  is  shown  in  the  table  of  receipts  at  the 
end  of  chapter  II.32 

No  further  legislation  occurred  until  1846,  when  the 
tax  on  domestic  insurance  companies  was  raised  to  six  per 
cent,  on  their  gross  profits.33  This  would  seem  to  indicate 
that  the  business  was  prospering  in  Ohio.  By  the  constitu- 
tion of  1851  it  was  provided34  that  corporate  property 
should  be  taxed  like  the  property  of  individuals.  Accord- 
ingly the  law  of  April  13,  1852,  ordered  all  insurance  com- 
panies, as  well  as  canals,  railroad,  bridge,  telegraph,  and 
other  joint  stock  companies,  to  list  all  their  property  at  its 
actual  value;  all  property  so  listed  to  pay  the  same  tax 
as  other  property  in  the  state.33  No  distinction  was  here 
made  between  domestic  and  foreign  insurance  companies, 
and  as  a  result  the  latter  escaped  taxation  in  Ohio  since 
they  had  no  property  in  the  state.  During  the  period  of 
the  Civil  War  the  business  of  insurance  attained  an  enor- 
mous development  in  Ohio,  and  was  steadily  on  the  in- 
crease;36 the  auditor  urged  the  taxation  of  foreign  in- 
surance companies  in  his  report  for  1865. 

It  was  not  until  1876,37  however,  that  foreign  in- 
surance companies  were  again  specifically  taxed.  An  act 
of  that  year  provided  that  foreign  insurance  companies 
doing  business  in  Ohio  should  return  annually  to  the 
auditor  of  the  county  in  which  an  agency  was  kept  the 
amount  of  the  gross  premium  receipts  of  such  company, 
which  should  be  entered  upon  the  tax  list  and  taxed  at  the 
same  rate  as  all  other  personal  property.38  Similar  legisla- 

"Act  of  March  12,  1831. 

"Figures  for  1831  to  1844  are  given  in  spec.  rep.  of  aud.,  Dec.  23,  1844. 

"March  2,  1846. 

"Art  XIII,  sec.  4. 

'"This  was  repeated  in  the  act  of  April  5,  1859. 

"Aud.  rep.  Exec.  Doc.,  1865,  I,  334. 

"73  O.  L.  139,  §  16. 

"This  was  re-enacted  by  the  act  of  April  11,  1888.  O.  L.,  p.  183. 


338  FINANCIAL  HISTORY  OF  OHIO  [338 

tion  in  other  states  directed  against  Ohio  companies  finally 
called  forth  the  retaliatory  act  of  April  12,  1889.39  This 
provided  that  the  superintendent  of  insurance  should  col- 
lect from  foreign  insurance  companies  such  sums  as  would, 
added  to  county  taxes,  produce  2y2  per  cent,  on  the  gross 
premium  receipts  of  such  companies ;  provided  that  if  Ohio 
companies  were  charged  more  than  2y2  per  cent,  in  other 
states  or  countries,  a  like  tax  should  be  imposed  upon 
companies  from  those  states.  If  any  company  refused  to 
pay  these  taxes,  its  license  to  do  business  in  the  state  should 
be  revoked.  The  proceeds  of  this  tax  were  to  be  paid  into 
the  state  treasury  for  the  general  uses  of  the  state. 

In  1893  a  slight  change  was  made  in  the  tax.  Foreign 
insurance  companies  were  taxed  on  their  gross  premium 
and  assessment  receipts;  but  if  the  policy  holders  partici- 
pated in  the  earnings,  such  distribution  of  earnings  was 
first  to  be  subtracted.40  The  retaliatory  feature  remained 
unchanged.  In  1902  another  change  was  made  in  the  basis 
of  the  tax.  An  excise  tax  of  2~y2  per  cent,  was  levied  on 
the  gross  premiums,  less  the  return  premiums  and  con- 
siderations for  reinsurance,  but  no  alteration  was  made  in 
the  retaliatory  feature.41  No  change  was  made  in  the 
law  respecting  domestic  insurance  companies,  and  they  are 
taxed  on  their  property  like  other  corporations.42  In  1900 
a  tax  of  1/2  Per  cent,  was  imposed  on  the  gross  premium 
receipts  of  all  insurance  companies,  in  addition  to  existing 
taxes,  to  defray  the  expenses  of  a  state  fire  marsh  all  and 
his  department.43  For  the  year  ending  November  15,  1909, 
the  receipts  from  the  insurance  department  were 
$1,049,277. 


mO.  L.,  1889,  p.  274. 

"Act  of  April  19,  1893.  Amended  by  act  of  March  27,  1894.  O.  L., 
1893,  p.  201. 

"Act  of  April  29,  1902.  O.  L.,  p.  290.  Amended  by  act  of  April  25, 
1904. 

"R.  S.  §2745,  2745d. 

"Act  of  April  16,  1900.     O.  L.,  p.  389. 


339]  BUSINESS  AND  MISCELLANEOUS  TAXES  339 

TRANSPORTATION  COMPANIES. 

The  first  of  the  various  companies  engaged  in  the  work 
of  improving  the  means  of  transportation  in  Ohio  to  be 
subjected  to  taxation  for  state  purposes  were  the  bridge 
companies.  An  act  of  March  12,  1831,  levied  a  tax  of  five 
per  cent,  on  the  dividends  of  bridge  companies,  as  well  a« 
on  those  of  bank  and  insurance  companies.  That  the  bridge 
companies  were  included  in  a  trio  with  the  other  two  busi- 
nesses shows  that  they  must  have  been  profitable.  In  the 
same  year44  all  stocks  or  capital  invested  in  steamboats, 
and  all  pleasure  carriages  with  two  or  four  wheels,  were 
taxed  in  the  hands  of  their  owners  according  to  their 
value  in  money.  The  general  property  tax  law  of  March  2, 
1846,  provided  for  the  taxation  of  railroad,  canal,  and 
slack  water  navigation  companies  according  to  their  true 
value  in  money.  By  the  act  of  April  13,  1852,  every  canal, 
railroad,  turnpike,  insurance,  bridge,  telegraph  and  other 
company  was  required  to  list  for  taxation,  at  its  actual 
value,  its  real  and  personal  property,  within  the  state. 
Property  was  to  be  returned  to  the  auditor  of  the  county 
where  it  was  situated  and  moveable  property  to  be  appor- 
tioned pro  rata  according  to  the  value  of  the  fixed  property. 
Property  so  listed  was  to  pay  all  state  and  local  taxes.  No 
change  in  principle  was  made  by  the  law  of  April  5,  1859. 

After  this  date  a  wide  differentiation  took  place  in  the 
value  and  tax  bearing  ability  of  these  different  corporations. 
Railroads  grew  in  magnitude  and  importance  and  called 
for  peculiar  and  separate  treatment;  the  history  of  their 
taxation  is  discussed  elsewhere.45  Private  canals  fell  into 
disuse  and  were  abandoned,  while  the  state  canals  were 
never,  of  course,  objects  of  taxation.  Turnpikes  and 
bridges  were  constructed  by  governmental  rather  than  by 
private  aid,  and  the  property  of  the  early  private  com- 
panies was  taken  over  by  the  counties  or  townships.  Other 
corporate  property  was  taxed  under  the  general  property 

"Act  of  March  14,  1831. 

"See  chapter  VI,  on  the  History  and  Taxation  of  Railroads. 


340  FINANCIAL  HISTORY  OF  OHIO  [340 

tax,  though  after  1860  special  boards  or  other  tax  ma- 
chinery began  to  be  used  in  assessing  taxes  on  these  trans- 
portation agencies.  With  the  development  of  special  com- 
panies for  the  transmission  of  news  attention  began  to  be 
directed  to  their  taxation,  and  to  these  we  may  now  turn. 

THE    TAXATION    OF    TELEGRAPH,    TELEPHONE,    AND    EXPRESS 

COMPANIES. 

The  first  mention  of  any  of  these  companies  for  pur- 
poses of  taxation  occurred  in  the  act  of  April  13,  1852, 
which  provided  that  telegraph  companies,  among  others, 
should  list  their  real  and  personal  property  for  taxation 
under  the  general  property  tax  rate.  Foreign  companies 
managed  to  escape  under  this  general  act,  so  in  1862  a  law 
was  passed46  taxing  foreign  telegraph  and  express  com- 
panies on  their  net  receipts  within  the  state.  Express  com- 
panies were  permitted  to  deduct  the  amount  required  to  be 
paid  out  for  transportation  expenses,  and  telegraph  agents 
might  deduct  the  necessary  expenses  of  their  offices.  Severe 
penalties  were  provided  for  non-compliance  and  the  agents 
were  made  personally  liable.  If  the  returns  were  not  made 
by  the  agent,  the  auditor  was  to  enter  them  upon  the  tax 
duplicate  with  a  penalty  of  50  per  cent.  If  the  taxes  were 
not  paid  the  agent  was  made  personally  liable  and  his 
personal  property  was  subject  to  sale,  while  if  the  taxes 
were  unpaid  in  thirty  days  it  was  made  unlawful  for  any 
one  to  act  as  agent,  and  the  company  could  not  do  business. 

After  a  three  years'  trial  of  this  law  it  was  amended 
by  the  act  of  April  13,  1865.47  Telegraph  companies  were 
no  longer  allowed  to  deduct  the  "necessary  expenses"  of 
their  office,  but  were  taxed  on  their  gross  receipts.48  Evi- 
dently these  expenses  had  swollen  to  undue  proportions. 
In  the  case  of  express  companies  the  right  to  deduct  the 
cost  of  transportation  from  gross  receipts  was  continued, 
but  the  law  stipulated  that  the  amount  deducted  be  not 

"Act  of  May  i,  1862.    59  O.  L.,  gi.    Swan  and  Sayler,  p.  769. 

"62  O.  L.  174. 

"This  had  been  urged  by  the  auditor.    Exec.  Doc.,  1864,  I,  225. 


341]  BUSINESS  AND  MISCELLANEOUS  TAXES  341 

the  amount  required  to  be  paid,  but  the  amount  actually 
paid  for  transportation  charges.  The  principal  agent  of 
the  company,  moreover,  was  permitted  to  make  the  returns 
to  the  county  auditor,  instead  of  the  local  agents.  For  a 
period  of  twenty-eight  years  following  this  law  there  was 
no  further  legislation  on  this  subject,  but  the  telegraph 
companies  must  have  prospered,  if  any  inference  can  be 
drawn  from  the  following  rates:49 

Rates  for  10  words  Western  Union  Atlantic  &  Pacific 

in  cents.  1868  1869  1868  1869 

For     50  miles 45  30  25  30 

For   loo  miles 60  40  30  30 

For  200  miles 75  70  40  40 

For  300  miles 90  90  40  70 

For  400  miles 105  no  50 

For  500  miles 120  130  50 

The  rise  in  the  long  distance  rates  of  the  Western 
Union  company  in  1869,  after  the  competition  of  the  At- 
lantic &  Pacific  company  ceased,  is  significant,  as  well  as 
the  fall  in  the  short  distance  rates. 

On  April  27,  1893,  the  general  assembly  passed  the 
Nichols  law,  thereby  changing  entirely  the  method  of 
assessment.50  In  place  of  the  annual  statements  filed  writh 
the  county  auditors  and  forwarded  by  them  to  the  auditor 
of  state,  a  board  of  appraisers  and  assessors  was  provided 
for,  composed  of  the  state  treasurer,  attorney  general,  and 
auditor,  who  should  assess  the  value  of  the  property  of 
express,  telegraph,  and  telephone  companies  doing  business 
in  the  state.  Every  such  company  must  file  annually  with 
the  auditor  of  state  a  sworn  statement  comprising  the  fol- 
lowing items:  (1)  the  amount  of  capital  stock,  (2)  place 
of  business,  (3)  the  par  and  market  value  of  its  shares  (if 
there  be  no  market  value  then  the  actual  value),  (4)  the 
value  of  the  entire  real  and  personal  property.  In  addition 
to  these  items  the  telegraph  and  telephone  companies  were 
required  to  state  (5)  the  length  of  their  lines  within  the 

**Rep.  Com'r  of  Railroads  and  Telegraphs.    Exec.  Doc.,  1869,  II,  659. 
"90  O.  L.  330. 


342  FINANCIAL  HISTORY  OF  OHIO  [342 

state,  and  (6)  the  length  of  their  lines  without  the  state. 
The  express  companies  were  also  to  return  the  gross  re- 
ceipts for  the  year,  for  each  office  in  Ohio.  In  determining 
the  value  of  the  property  within  the  state  for  assessment 
the  board  was  to  be  guided  by  the  value  of  the  capital  stock ; 
the  taxes  were  to  be  apportioned  to  the  counties  in  which 
the  companies  did  business,  and  real  estate  taxed  locally 
was  to  be  deducted.  The  following  year51  provision  was 
made  for  severe  penalties  in  case  of  non-compliance  with 
the  law:  failure  to  file  the  statement  when  due  subjected 
the  negligent  company  to  a  fine  of  |500,  followed  by  an 
additional  penalty  of  f  100  per  day  until  filed.  This  act 
was  called  forth  by  the  resistance  of  the  telegraph  com- 
panies to  the  increased  taxes  imposed  upon  them  by  the 
law  of  1893;  they  contested  the  constitutionality  of  the 
Nichols  law,  but  it  was  declared  valid  by  the  Supreme 
Court. 

During  the  same  session  the  express  companies  were 
singled  out  for  special  and  heavy  taxation,  by  the  imposi- 
tion of  an  excise  tax  of  2  per  cent,  on  their  gross  receipts.52 
The  gross  receipts  were  to  be  ascertained  by  deducting  the 
amounts  actually  paid  to  railroads  for  transportation  from 
the  entire  receipts  for  business  done  in  the  state.  This 
was  to  be  fixed  by  the  state  board  of  appraisers  and  assess- 
ors before  described,  who  were  to  apportion  the  taxes 
among  the  counties  in  which  the  business  was  done.  Heavy 
penalties  were  provided  in  case  of  failure  to  pay  this  tax, 
but  they  were  not  thereby  exempted  from  the  general  tax 
on  their  tangible  property.  This  tax  remained  in  operation 
for  eight  years,53  until  it  was  superseded  by  the  Cole  law 
tax  on  all  public  service  corporations  in  1902. 

TAX  ON  PUBLIC  SERVICE  CORPORATIONS. 

In  1902  the  Cole  law  levied  an  excise  tax  of  1  per  cent, 
on  the  gross  receipts  earned  in  the  state,  of  public  service 
corporations,  for  the  privilege  of  operating  in  Ohio.54  The 

"Act  of  May  10,  1894.    Laning's  Rev.  Stat.,  1906,  I,  865,  §4119. 
"Act  of  May  14,  1894,    91  O.  L.  237. 
"Repealed  by  act  of  May  9,  1902.    99  O.  L.  440. 
"Act  of  April  15,  1902;  amended  April  25,  1904. 


343]  BUSINESS  AND  MISCELLANEOUS  TAXES  343 

businesses  enumerated  by  this  act  are  all  domestic  and 
foreign  corporations  engaged  in  steam,  street,  surburban 
or  interurban  railroad,  express,  telegraph,  telephone,  elec- 
tric light,  gas,  natural  gas,  pipe  line,  waterworks,  messen- 
ger or  signal,  union  depot,  heating,  cooling,  and  wate*1 
transportation  companies.  These  companies  report  their 
earnings  and  other  information  to  the  state  board  of  ap- 
praisers and  assessors,  which  consists  of  the  auditor, 
treasurer,  secretary  of  state,  and  attorney  general,  and  the 

1  per  cent,  tax  is  imposed  by  this  board,  and  collected 
through  the  office  of  the  auditor  of  state.     The  express 
companies  must  file  their  entire  receipts ;  the  telegraph  arid 
telephone  companies  their  gross  receipts;  the  railroads, 
their  gross  earnings;  the  street  and  interurban  railways, 
their  gross  earnings;  and  other  corporations,  their  gross 
receipts.    The  tax  is  used  exclusively  for  state  purposes 55 
In  addition  to  this  excise  or  privilege  tax,  the  real  and 
personal  property  of  these  corporations  is  subject  to  the 
same  taxation  as  other  property  in  the  state,  for  state  and 
local  purposes. 

In  1910  the  principal  of  differentiation  was  introduced 
in  the  taxation  of  these  corporations.*  Previously  all  the 
public  service  utilities  had  paid  the  same  excise  tax  of  one 
per  cent,  of  their  gross  receipts  supposedly  earned  within 
the  state;  this  large  class  was  now  broken  up  into  smaller 
groups,  upon  each  of  which  is  laid  a  different  rate.  Rail- 
road and  pipe  line  companies  are  taxed  4  per  cent,  of  their 
intrastate  gross  receipts;  express  and  telegraph  companies, 

2  per  cent. ;  and  street,  suburban  and  interurban  railroad 
companies,  electric  light,  gas,  natural  gas,  waterworks,  tele- 
phone, messenger  or  signal,  union  depot,  heating  or  cooling, 
and  water  transportation  companies,  1.2  per  cent,  of  such 
gross  earnings  or  receipts.    The  companies  in  the  last  two 
groups  are  also  subject  to  the  assessment  and  taxation  of 
their  property  in  the  usual  manner. 

"Rer.  Stat.,  §  2780-17  to  §  2780-23. 
*Act  of  May  10,  1910.  101  O.  L.  399. 


344  FINANCIAL  HISTORY  OF  OHIO  [344 

TAX  UPON  FOREIGN  AND  DOMESTIC  CORPORATIONS. 

As  the  constitution  of  1851  called  for  the  uniform  taxa- 
tion of  all  property,  whether  in  the  hands  of  individuals  or 
corporations,  it  became  necessary  to  devise  some  method 
that  would  not  conflict  with  this  provision,  when  the 
heavier  taxation  of  corporations  was  decided  upon.  Con- 
sequently the  various  corporation  taxes  are  known  not  as 
taxes,  but  as  fees  or  excise  or  privilege  charges.50  In  1902 
the  Willis  law  imposed  a  general  corporation  tax  upon  all 
foreign  and  domestic  corporations  (except  those  conduct- 
ing a  public  service,  which  were  otherwise  taxed).  Do- 
mestic corporations,  operating  for  profit,  are  required  to 
file  a  report  containing  the  amount  of  the  authorized 
capital  and  its  par  value,  and  the  amount  subscribed, 
issued,  and  paid  up;  upon  the  subscribed  or  outstanding 
capital  stock  they  are  to  pay  annually  Vio  °f  1  Per  cent., 
but  not  less  than  f  10.  Foreign  corporations  operating  for 
profit,  are  required  to  pay  1/10  of  1  per  cent,  upon  the 
proportion  of  their  authorized  capital  stock  represented 
by  property  owned  and  used  and  business  transacted  in 
Ohio  but  not  less  than  $10.  Domestic  corporations,  not 
operated  for  profit,  have  to  pay  $1  annually.  This  tax  is 
collected  by  the  secretary  of  state  and  the  proceeds  used 
exclusively  for  state  purposes.  In  1904  an  act  "to  relieve 
owners  of  stock  from  double  taxation"  excepted  certain 
companies  which  were  otherwise  taxed,  as  foreign  insur- 
ance, banking,  savings  and  loan,  or  building  and  loan,  and 
transportation  and  transmission  companies  engaged  in 
Ohio  in  interstate  commerce.57  The  individual  was  not 
taxed  on  the  shares  of  corporations  already  taxed.58 

In  1910  the  rate  of  taxation  was  slightly  raised.*  Each 

"The  title  of  the  corporation  tax  law  of  April  n,  1902,  was,  "An 
act  to  require  corporations  to  file  annual  reports  with  the  Secretary  of 
State  and  pay  annual  fees  therefore."  99  O.  L.  124. 

MAct  of  April  25,  1904.    101  O.  L.  496. 

"Cf.  Rev.  Stat.,  §  2780-24  to  §  2780-31 ;  or  Laning's  Rev.  Stat.,  1906, 
§§  4150  ff. 

*Act  of  May  10,  1910.    101  O.  L.  399. 


345]  BUSINESS  AND  MISCELLANEOUS  TAXES  345 

corporation  for  profit  organized  under  the  laws  of  Ohio  is 
now  required  to  make  an  annual  report,  and  is  subject  to  a 
fee  of  three-twentieths  of  one  per  cent,  upon  its  subscribed 
or  issued  and  outstanding  capital  stock.  Each  foreign  cor- 
poration for  profit  doing  business  in  Ohio  must  make 
similar  reports  annually ;  and  is  subject  to  a  tax  of  one- 
tenth  of  one  per  cent,  for  1910,  and  three-twentieths  of  one 
per  cent,  for  each  year  thereafter,  upon  the  proportion  of 
the  authorized  capital  stock  represented  by  property  and 
business  in  the  state.  Public  utility,  insurance,  and  build- 
ing and  loan  companies  required  to  make  other  reports  and 
pay  other  taxes  are  not  subject  to  these  provisions. 

LIQUOR  TAXES. 

The  taxation  of  the  sale  of  liquors  in  Ohio  is  an  inter- 
esting subject,  because,  so  far  as  a  layman  can  see,  the 
whole  business  is  illegal.  The  constitution  of  1851  (Art. 
XV,  sec.  9)  provided  that  "no  license  to  traffic  in  intoxicat- 
ing liquors  shall  hereafter  be  granted  in  this  state;  but  the 
general  assembly  may,  by  law,  provide  against  the  evils 
resulting  therefrom."  The  vote  on  this  clause  was  close, 
being  113,237  to  104,255.  The  framers  of  the  constitution 
intended  to  prohibit  the  license  of  the  liquor  traffic  and  a 
majority  of  the  voters  supported  them.  As  the  constitution 
has  never  been  amended  in  this  regard,  the  existence  of  the 
traffic  in  liquors  in  Ohio  would  seem  to  be  illegal.  But 
while  the  constitution  has  not  been  changed,  it  has  been 
evaded;  under  the  clause  giving  the  general  assembly  the 
right  to  regulate  the  evils  arising  therefrom,  it  is  regularly 
fined  or  penalized  each  year  by  the  collection  of  a  tax. 
The  history  of  the  liquor  taxes  in  this  state  is  therefore 
very  largely  a  history  of  judicial  interpretation. 

It  was  not  long  after  the  adoption  of  the  constitution 
before  the  first  legislation  on  the  subject  was  passed.59  The 
act  of  May  1,  1854,  provided  against  the  evils  resulting 
from  the  use  of  intoxicating  liquors,  by  punishing  the  sale 

"52  O.  L.   153.     No  state  laws  had  been  passed  in  the  period  prior  to 
1851  taxing  or  regulating  the  liquor  traffic,  but  this  had  been  done  locally. 


346  FINANCIAL  HISTORY  OF  OHIO  [346 

of  intoxicating  liquors  to  be  drunk  in  or  about  the  building 
where  they  were  sold.  A  penalty  of  a  fine  of  from  $20  to 
$50  and  imprisonment  of  from  10  to  30  days  in  the  peni- 
tentiary was  provided.  Apparently  no  limitation  was 
placed  upon  the  sale  of  liquor  for  home  consumption;  only 
the  saloon  was  forbidden.  Not  until  1882  were  saloons 
legalized  and  the  business  put  upon  a  legal  basis.60  Under 
the  Pond  Law  a  system  of  taxation  was  provided,  graded 
in  amount  according  to  the  location  of  the  business,  with 
the  requirement  of  a  bond  for  the  performance  of  all  the 
conditions  of  the  act,  and  providing  penalties  of  fine  or 
imprisonment,  or  both.  At  the  January  term,  1882,  of  the 
Supreme  Court,  this  act  was  declared  unconstitutional,  on 
the  ground  that,  as  it  was  unlawful  to  sell  intoxicating 
liquors  to  be  drunk  upon  the  premises,  and  the  Pond  law 
gave  the  privilege  of  freely  trafficking  in  intoxicating 
liquors  to  dealers  who  execute  bonds  and  pay  into  the 
treasury,  in  advance,  annual  sums  of  money,  and  as  it  is 
impossible  for  dealers  who  fail  to  comply  with  the  statute, 
to  sell  intoxicating  liquors  of  any  sort  without  committing 
a  crime,  the  tax,  as  levied,  is,  in  effect,  a  license.61 

The  following  year  the  general  assembly  tried  to  meet 
these  criticisms  and  to  pass  a  law  authorizing  the  liquor 
traffic  that  would  stand  the  constitutional  test.  The  Scott 
law  was  accordingly  passed  on  April  17,  1883,62  providing 
for  a  tax  of  $200,  and  omitting  the  bond  and  penalty  fea- 
tures of  the  Pond  Law,  but  making  the  assessment  a  lien 
upon  the  real  estate  on  or  in  which  the  business  was  con- 
ducted. At  the  January  term,  1883,  the  Supreme  Court 
decided  this  act  "a  valid  and  constitutional  amendment."63 
In  Butzman  v.  Whitlock64  it  was  held  that  the  Scott  law, 
so  far  as  it  provided  for  a  lien  on  real  estate,  was,  in 

"79  O.  L.  66. 

"State  v.  Hipp,  38  O.  S.  199.    This,  and  subsequent  digests  of  decisions 
are  taken  from  Bates's  Annotated  Ohio  Statutes,  II,  2417  01-2418. 
"80  O.  L.  164. 

"State  v .  Frame,  Benner  v.  Bauder,  39  O.  S.  399. 
••42  O.  S.  223. 


347]  BUSINESS  AND  MISCELLANEOUS  TAXES  347 

effect,  a  license  law,  and  therefore  unconstitutional.  The 
Supreme  Court  similarly  held,65  that,  so  far  as  the  law 
provided  for  a  lien  in  the  manner  set  forth  therein,  it  was, 
in  effect,  a  license  law,  and  therefore  unconstitutional. 

The  general  assembly  was  becoming  wiser,  and  was 
now  able,  after  the  rocks  had  been  pointed  out  on  which  a 
liquor  law  might  suffer  shipwreck,  to  pass  a  seaworthy  act. 
The  Dow  law,  with  the  praiseworthy  and  constitutional 
title  of  "an  act  providing  against  the  evils  resulting  from 
the  traffic  in  intoxicating  liquors",  was  passed  on  May  14, 
1886,66  providing,  among  other  things,  for  a  yearly  tax  of 
$200  on  the  traffic  in  intoxicating  liquors,  and  one  of  $100 
on  the  traffic  in  malt  or  vinous  liquors.  Of  the  proceeds, 
three-fourths  were  to  go  into  the  county  treasury  and  one- 
fourth  into  the  poor  fund.  In  Adler  v.  Whitbeck  and  An- 
derson v.  Brewster,67  the  constitutionality  of  this  statute 
was  upheld.  The  syllabus  of  the  former  case  was  as  fol- 
lows: "It  is  competent  for  the  general  assembly  of  the 
state  to  impose  a  tax  on  the  business  of  trafficking  in  in- 
toxicating liquors  as  a  means  of  providing  against  the  evils 
resulting  therefrom".  Neither  the  tax  so  imposed,  nor  a 
provision  that  the  same  shall  attach  as  a  lien  on  the  prop- 
erty in  which  it  is  conducted,  constitutes  a  license  within 
the  meaning  of  the  constitution. 

Up  to  this  time  the  liquor  tax  had  gone  into  the  local 
treasuries,  but  insufficient  state  revenues  led  the  governor 
in  1886  to  suggest  that  the  state  be  given  twenty-five  per 
cent  of  the  proceeds  of  the  liquor  traffic  tax.68  The  sug- 
gestion was  followed,  in  part  at  least,  in  the  act  of  March 
26,  1888,69  which  raised  the  amount  of  the  tax  to  $250, 
swept  away  the  distinction  between  the  different  kinds  of 
liquors,  and  gave  the  state  one-fifth  of  the  proceeds.  Suc- 
cessive amendments  have  raised  the  tax  still  further  and 

"State  v .  Sinks,  42  O.  S.  345. 
-83  O.  L.  157. 
"44  O.  S.  539,  576. 
"Gov.  Mess.,  1886,  p.  744. 
"O.  L.,  1889,  p.  116. 


348  FINANCIAL  HISTORY  OF  OHIO  [348 

have  increased  the  share  of  the  state  in  the  receipts,  but 
have  not  altered  the  law.  The  various  changes  in  the  Dow 
law  are  shown  in  the  following  table: 

Date  of  law.  Amount  of  tax.  Share  of  state. 

May  14,  1886 $200  and  $100  o 

March  26,  1888 $250  2A. 

Feb.  20,  1896 350  Vio 

March  28,  1906 1000  Vio 

The  revenues  to  the  state  from  this  source  have  been 
important  and  have  steadily  increased,  amounting,  for 
the  year  ending  November  15,  1909,  to  f  2,045,138.  A  pro- 
vision for  local  option  was  contained  in  the  Dow  law,  by 
which  a  special  election  could  be  held  when  one-quarter  of 
the  voters  in  a  township  petitioned  for  it,  to  decide  the 
question  of  legalizing  the  liquor  traffic;  the  issue  is  de- 
cided by  a  majority  vote.  On  January  1,  1911,  there  were 
62  "dry"  counties  in  the  state  out  of  a  total  of  88. 

TAX  ON  CIGARETS. 

Similar  to  the  liquor  tax  law  is  that  levying  a  tax 
upon  the  business  of  trafficking  in  cigarets.  The  first  tax 
of  this  sort  was  imposed  by  the  act  of  April  24,  1893,70 
"to  tax  the  business  of  trafficking  in  cigarets  or  cigaret 
wrappers",  which  exacted  an  annual  payment  of  |300  on 
the  wholesale  and  of  $100  on  the  retail  business.  One-half 
of  the  proceeds  were  to  go  to  the  state  and  the  other  half 
into  the  county  treasury.  This  law  was  amended  the  fol- 
lowing year71  by  reducing  the  tax  to  $30  and  $15  on  the 
wholesale  and  retail  business  respectively;  the  distribu- 
tion of  the  tax  remained  the  same.  This  act  bore  a  title 
similar  to  that  of  the  Dow  law,  "to  provide  against  the 
evils  resulting  from  the  traffic  in  cigarets",  which  suggests 
a  relationship  between  the  two.  For  the  year  ending  No- 
vember 15,  1909,  the  tax  yielded  $23,000. 

INHERITANCE  TAXES. 

In  the  search  for  new  sources  of  income  for  the  state 
treasury  the  inheritance  tax  wras  also  hit  upon,  as  being 

"90  O.  L.  235. 

"Act  of  May  18,  1894.    91  O.  L.  311. 


349]  BUSINESS  AND  MISCELLANEOUS  TAXES  349 

both  equitable  and  productive.72  The  first  action  was  taken 
by  the  legislature  in  the  session  of  1892,  when  the  House 
passed  a  collateral  inheritance  tax  bill  on  April  5,  by  a 
vote  of  60  to  18.73  As  the  legislature  adjourned  within  two 
weeks  from  this  date  no  action  was  taken  by  the  Senate, 
but  early  in  the  following  session  they  passed  the  bill,74  and 
it  became  law  on  January  27, 1893.  This  act  was  primarily 
experimental  in  its  character,  and  was  copied  in  large 
part  from  the  Connecticut  statute  on  the  subject.75  It 
imposed  a  tax  of  3!/o  per  cent  on  all  collateral  inheritances 
above  the  sum  of  $10,000.  The  list  of  persons  considered 
as  direct  heirs  and  therefore  not  subject  to  the  tax,  was  a 
very  long  one,  and  included  the  following :  father,  mother, 
husband,  wife,  brother,  sister,  niece,  nephew,  lineal  de- 
scendants, and  adopted  child,  the  lineal  descendant  of  any 
adopted  child,  the  wife  or  widow  of  a  son,  or  the  husband 
of  a  daughter.76 

The  same  session  of  the  legislature  which  passed  the 
first  collateral  inheritance  law,  provided  for  the  appoint- 
ment of  a  tax  commission,  "to  thoroughly  investigate  the 
whole  subject  of  taxation  in  the  State,"  and  to  make  rec- 
ommendations for  a  revision  of  the  tax  laws.  Among  the 
recommendations  submitted  by  them  were  two  which  bore 
upon  this  subject — a  privilege  tax  on  transfers  of  property 
by  deed,  mortgage  or  will,  and  upon  appeals,  writs  of  error, 
etc. ;  and  an  extension  of  the  collateral  inheritance  tax  to 
classes  exempted  by  the  present  law,  and  an  increase  of  the 
tax.77  Two  laws  were  accordingly  passed  in  1894,  de- 
signed to  carry  out  these  suggestions,  of  which  one  was  a 
direct  inheritance  tax  and  the  other  amended  the  existing 

""The  tax  upon  inheritances  is  another  means  of  reaching  personal 
property  which  otherwise  escapes.  It  is  to  be  approved  because  it  is  an 
effective  substitute  for  the  tax  upon  intangible  property."  Rep.  Ohio  Tax 
Commission,  1893,  p.  62. 

nHo.  ].,  1892,  p.  150. 

"Sen.  J.,  1893.  p.  36. 

"Max  West,  "The  Inheritance  Tax."  Col.  Univ.  Studies,  1893-4,  p.  89-91. 

"90  O.  L.  14. 

rRep.,  p.  70. 


350  FINANCIAL  HISTORY  OF  OHIO  [350 

collateral  inheritance  tax  law.  By  the  latter  act  the  rate 
was  increased  to  5  per  cent  and  the  exemption  reduced  to 
$200.  Of  the  proceeds  from  the  tax  75  per  cent  was  to 
go  to  the  state  and  25  per  cent  to  the  county  in  which  the 
tax  was  collected.  No  change  was  made  in  the  list  of  per- 
sons who  were  considered  direct  heirs,  but  bequests  to 
the  state  and  local  government,  public  institutions  of  learn- 
ing, public  charity,  or  any  other  exclusively  public  use 
were  exempt  from  the  operation  of  the  law.78 

The  direct  inheritance  tax  law  was  designed  to  com- 
plement the  collateral  inheritance  tax,  and  was  passed  the 
same  day.79  Estates  over  $20,000,  passing  to  any  of  the 
persons  enumerated  as  direct  heirs  in  the  earlier  act  of 
January  27,  1893,  were  subjected  to  a  progressive  tax, 
graduated  from  1  per  cent  on  the  smallest  estates  to  ^ 
per  cent  on  those  over  $1,000,000.  The  same  distribution 
of  the  proceeds  was  provided  for  as  in  the  twin  collateral 
inheritance  tax,  namely  75  per  cent  to  the  state  and  25 
per  cent  to  the  county  in  which  the  tax  was  collected.  It 
may  be  noted  that  at  the  time  of  its  enactment  this  was  the 
only  progressive  direct  inheritance  tax  in  the  United 
States.80  The  following  table  shows  the  various  rates  and 
the  scale  of  progression  :81 

OHIO   DIRECT   INHERITANCE   TAX,   1894. 

Estate.  Tax. 

Under  $20,000 o 

$     20,000 — $     50,000 i% 

50,000 —     100,000 il/2 

100,000 —     200,000 2 

200,000 —     300,000 3 

300,000—     500,000 3^ 

500,000 —  1,000,000 4 

1,000,000  and  over 5 

"Act  of  April  20,  1894.    91  O.  L.  169.    The  act  was  declared  constitu- 
tional in  Hagerty  v.  State,  55  O.  S.  613. 
"Act  of  April  20,  1894.    91  O.  L.  166. 
"Actually,  the  tax  is  degressive  instead  of  progressive. 
"Seligman,  Essays  in  Taxation,  p.  134. 


351]  BUSINESS  AND  MISCELLANEOUS  TAXES  351 

This  act  was  a  short-lived  one,  for  on  June  27,  1895, 
it  was  declared  unconstitutional  by  the  Supreme  Court 
of  Ohio,82  after  having  been  held  invalid  by  the  circuit 
court.  Both  courts  agreed  that  the  tax  was  not  on  prop- 
erty, but  on  the  right  or  privilege  of  succession,  and  hence 
was  not  inconsistent  with  the  clause  of  the  constitution 
requiring  uniform  taxation  of  all  property.83  But  both 
the  exemption  of  $20,000  and  the  progressive  scale  were 
held  to  be  in  conflict  with  that  section  of  the  Bill  of  Rights 
which  stated  that  "government  is  instituted  for  their  [the 
people's]  equal  protection  and  benefit."  The  principle  of 
a  direct  inheritance  tax  was  thus  sustained,  though  the 
application  of  it  in  this  particular  act  was  declared  im- 
proper. As  a  result  of  this  decision  the  collections  ceased 
and  the  state  and  county  auditors  were  directed  to  refund 
the  payments  already  made.84  But  upon  June  8, 1897,  this 
act  was  in  turn  declared  unconstitutional  because  it  failed 
to  receive  the  concurrent  vote  of  two-thirds  of  the  members 
of  the  general  assembly.  Consequently  another  act  had  to 
be  passed  to  remedy  this  defect  and  to  legalize  the  repay- 
ments already  made.85 

For  several  years  after  this  no  further  changes  were 
made  in  the  direction  of  extending  the  inheritance  tax 
legislation.  But  in  1904,  in  response  to  an  urgent  appeal 
from  Governor  Herrick  that  the  revenues  of  the  state  be 
increased,  a  bill  was  rushed  through  both  houses  of  the 
general  assembly  under  suspension  of  the  rules  on  the  last 
day  of  the  session.86  This  act  provided  that  a  tax  of  2 
per  cent  should  be  imposed  on  all  estates  in  excess  of  $3000 
passing  to  direct  heirs,  these  being  defined  as  in  the  pre- 
vious law  of  1894.  This  time  the  entire  proceeds  of  the  tax 
were  to  flow  into  the  state  treasury.  In  a  test  case  the 

"State  v.  Ferris,  53  O.  S.  314. 
"Art.  XII,  sec.  2. 

"Act  of  April  27,  1896.    92  O.  L.  374. 
"Act  of  April  8,  1808.    O.  L.,  1808,  p.  96. 

"Act  of  April  25,  1904.    97  O.  L.,  398.    The  vote  was  66  to  23  in  the 
House,  and  27  to  7  in  the  Senate. 


352  FINANCIAL  HISTORY  OF  OHIO  [352 

law  was  declared  constitutional,87  but  it  was  nevertheless 
repealed  the  following  session.  The  governor  declared  in 
his  annual  message  his  belief  that  it  was  "the  wish  of  the 
great  majority  of  the  people  of  the  state  that  the  inherit- 
ance tax  law  be  repealed,"88  and  this  was  accordingly  done 
by  the  act  of  April  2,  1906.89  The  collateral  inheritance 
tax  still  remains  in  force,90  though  the  returns  therefrom 
are  very  small,  amounting,  for  the  year  ending  November 
15,  1909,  to  only  f  45,139. 

MISCELLANEOUS   BUSINESS  TAXES    AND  LICENSES. 

In  addition  to  those  described  above,  the  state  levies 
an  annual  license  tax  on  peddlers,  $12  if  they  go  on  foot, 
f  20  if  with  one  horse,  $28  if  with  two  horses,  $60  if  on  boat 
or  train.  A  license  tax  is  also  levied  on  itinerant  vendors 
of  $25  per  annum.  A  license  tax  is  imposed  on  the  manu- 
facturer, importer,  or  agents  of  any  commercial  fertilizer 
of  $20  on  each  train.  This  last  is  paid  directly  to  the  Ohio 
state  board  of  agriculture. 

CONCLUSION. 

In  the  early  history  of  taxation  in  Ohio  a  number  of 
special  taxes  were  made  use  of  which  were  swept  away 
when  the  general  property  tax  was  put  into  universal 
application.  As  new  businesses  or  lucrative  pursuits  at- 
tracted legislative  attention  they  were  subjected  to  taxa- 
tion by  means  of  special  acts.  The  state  derived  its  main 
revenues  from  the  tax  on  land,  but  in  addition  to  that,  it 
obtained  some  income  from  taxes  on  sales  at  auction,  on 
lawyers  and  physicians,  merchants  and  exchange  brokers, 
bankers,  brokers  and  stock  jobbers,  canal,  railroad,  turn- 
pike, bridge,  insurance,  and  other  companies.  With  the 
introduction  of  the  general  property  tax  in  1846,  and 

"State  v.  Guilbert,  70  6.  S.  229.    Hostetter  v .  StafeT  5  U.  C~n.  s.,  337 ; 
16  C.  D.  702. 

"Gov.  Mess.,  1906,  p.  13. 

"•98  O.  L.  229. 

"Rev.  Stat.,  sec.  2731-1  to  2731-17. 


353]  BUSINESS  AND  MISCELLANEOUS  TAXES  353 

especially  after  the  requirement  by  the  constitution  of  1851 
of  the  uniform  taxation  of  all  property,  these  separate 
taxes  were  swept  away,  or  were  coalesced  under  the  general  / 
property  tax.  This  all  embracing  tax  or  rather  complex 
of  taxes,  took  the  place  of  the  various  special  taxes.  Grad- 
ually, however,  with  the  development  of  the  industrial  life 
of  the  state  and  of  new  corporate  interests,  the  general 
property  tax  was  seen  to  be  quite  inadequate.  Then  began 
the  third  phase  in  the  history  of  taxation  in  Ohio,  the 
splitting  off  of  certain  industries  or  forms  of  property 
from  the  general  property  tax  and  taxing  them  at  a  dif- 
ferent rate,  or  on  a  different  basis  than  property,  or  by 
special  machinery.  This  last  period  has  seen  the  growth  of 
a  number  of  very  interesting  and  important  taxes,  which 
have  had  a  peculiar  development  in  Ohio  because  of  the 
inhibition  placed  upon  legislative  freedom  by  constitu- 
tional prohibitions. 

But  not  merely  have  special  corporation  and  inherit- 
ance taxes  been  developed,  from  which  the  state  derives  an 
increasing  revenue,  but  there  has  been  achieved  in  Ohio 
the  practically  complete  separation  of  state  and  local 
sources  of  revenue.  The  general  property  tax  has  thus  been 
left  to  the  local  governments.  The  administration  of  this 
tax  has,  however,  been  centralized  in  the  hands  of  the  state 
tax  commission,  which  is  given  power  to  order  reassess- 
ments. Serious  study  has  been  given  to  the  subject  of  taxa- 
tion in  Ohio  of  recent  years,  and  the  establishment  of  a 
permanent  tax  commission  may  be  said  to  have  ushered  in  a 
fourth  stage  in  the  history  of  taxation  in  that  state.  Much 
progress  has  already  been  made,  but  much  remains  to  be 
done.  Most  important  is  the  change  in  the  uniformity 
clause  in  the  state  constitution ;  but  it  is  fairly  certain  that 
the  constitutional  convention  now  sitting  (March,  1912) 
will  modify  this  rule.  Substantial  improvements  have  been 
made  in  the  administration  of  the  tax  on  realty,  but  more 
scientific  and  precise  methods  of  valuation  should  be  gen- 
erally introduced.  The  next  important  step  in  the  direc- 
tion of  further  reform  will  be  the  finding  of  a  satisfactory 


354  FINANCIAL  HISTORY  OF  OHIO  [354 

J 

substitute  for  the  discredited  tax  on  intangible  personalty, 
but  it  is  difficult  at  this  time  to  suggest  what  this  may  be. 
Perhaps  the  addition  of  a  direct  inheritance  and  a  mortgage 
tax  to  the  already  existing  corporation  taxes  would  yield 
substantial  justice.  Or,  if  the  uniformity  clause  in  the  con- 
stitution is  amended,  personal  property  may  be  classified 
and  taxed  at  a  lower  rate  than  realty. 

Whatever  the  future  may  hold  in  store,  the  student  of 
taxation  in  Ohio  cannot  conclude  this  historical  survey 
without  having  his  conviction  of  the  inequity  of  the  general 
property  tax  system  deepened.  But  progress,  though  slow, 
has  been  made.  Experiments  had  to  be  made,  and  change 
has  sometimes  been  difficult,  even  though  it  was  evident 
that  the  existing  system  was  unjust  and  undesirable.  At 
last,  however,  the  general  property  tax  has  begun  to  dis- 
integrate, and  we  may  confidently  expect  to  see  developed 
in  Ohio  an  improved  system,  probably  along  the  lines 
already  marked  out  by  her  sister  states  further  to  the  east. 


INDEX 

Accounts,  160,  165;  canal  accounts,  148-153. 

Agriculture,  in  territory,  16;  products  in  1805,  22;  in  1822,  32;  societies,  35; 
exports,  41;  state  board  of,  44;  development,  1840-60,  52;  during  Civil 
War,  60 ;  wheat  production,  64 ;  experiment  station,  109. 

Appropriations,  68,  70,  82,  84,  86,  97,  103,  no,  179;  conclusions  as  to,  112- 
117;  tables  showing,  1800-1908,  118-121. 

Assessor,  203,  211,  217,  225. 

Atwater,  Caleb,  30. 

Auction  sales  and  auctioneers,  331. 

Auditor,  territorial,  13;  state,  145,  159,  166,  172-174,  175;  county,  225,  230. 

Bank  of  the  United  States,  28 ;  attempt  to  tax,  260-269,  273. 

Bank-notes,  28,  39,  258,  261,  284,  287;  struggle  over  note-issues,  269-276; 
unauthorized  notes,  274. 

Bank  taxation,  in  1815,  189,  257;  in  1816,  259;  in  1831,  281;  in  1846,  281; 
in  1850,  282 ;  struggle  over,  283-286,  289-293 ;  compromise  with  banks, 
293 ;  taxation  of  national  banks,  297-301 ;  taxation  of  banks  and  bank- 
ers, 216,  217,  222,  225,  238,  244,  330. 

Banks,  23,  43,  260,  277;  of  Chillicothe,  71;  corruption,  163;  Franklin  Bank, 
168,  266;  Western  Reserve  Bank,  168;  history  and  taxation  of,  1803- 
1819,  257-260;  regulation  of,  1839-1850,  276-280;  commissioners  appoint- 
ed, 276;  State  Bank,  278,  297;  free  banking  act  of  1851,  283;  condition 
of,  in  1857,  289 ;  in  1860,  295 ;  national  banks,  296. 

Benevolent  institutions,  79,  86,  98,  106. 

Bliss,  A.  A.,  156. 

Breslin,  J.  G.,  88,  156,  161,  164. 

Brokers,  tax  on,  36,  203,  206,  216,  225,  333. 

Brough,  J.,  94. 

Budget,  a  study  of  the,  68-144;  budgetary  legislation,  174-178;  present 
practice,  178-180. 

Canals,  33,  37,  43,  50,  78,  80,  303;  canal  accounts,  148-153;  taxation  of,  339. 

Carriages,  taxation  of,  203,  206,  207,  216,  227. 

Cattle,  taxation  of,  203,  204,  216,  227. 

Chase,  Salmon  P.,  57,  89,  169,  200,  227,  231,  288. 

Cigaret  tax,  245,  348. 

Collection  of  taxes,  186,  188,  192,  203,  239;  of  delinquent  taxes,  192,  195- 
200,  212-214,  231,  235,  254. 

Comptroller,  165,  171. 

Constitution  of  1802,  145,  174;  of  1851,  47,  158,  176,  221;  amendment  of, 
243,  248;  constitutional  convention,  47,  250,  353. 

Corporations,  taxation  of,  217,  223,  245,  246,  248,  251,  339,  344. 

Credits,  taxation  of,  208,  217,  219,  222,  224,  229,  232. 

Curry,  H.  M.,  74,  266. 


356  FINANCIAL  HISTORY  OF  OHIO  [356 

Defalcation  of  1820,  745  of  1857,  83,  88,  154,  161. 

Deficit,  15,  69,  70,  74,  84,  85,  88,  90,  95,  105,  109,  180. 

Deposits,  interest  on,  of  state  funds,  156,  159,  255. 

Direct  tax  of  federal  government,  71-73,  106,  189,  234. 

Economic  conditions  to  1803,  16-18;  in  1805,  22;  in  1822,  31. 

Equalization,  boards  of,  204,  211,  217,  226,  230,  238,  245. 

Excise  taxes,  245,  246,  248. 

Exemptions  from  taxation,  194,  203,  207,  214-217,  220,  222,  224,  248. 

Expenditures,   1803-1824,   68-76;   79,  82,  94;   local,  96;   reduction  of,  99; 

enlarged,    106-108,    112;   conclusions   as   to,    112-117;   tables   showing, 

1800-1908,   118,121;    1822-1908,    134-144. 
Express  companies,  taxation  of,  228,  245,  246,  251,  342. 
Fees,  10,  n,  17,  18,  245. 

Financial  organization,  1792-1802,  10-16;  administration,  1803-1910,  145-174. 
Foraker,  J.  B.,  243. 
Funds,  100-102. 

General  assembly,  pay  of,  19,  75,  95. 
General  property  tax,  law  of  1825,  36,  76,  202-214;  of  1831,  207;  of  1846, 

46,  84,  214-221;  of  1852,  223-227;  of  1859,  229-231;  of  1878,  237-240; 

abolition  of,  for  state  purposes,  246-248;  conclusions  as  to,  352. 
Gibson,  W.  H.,  88,  156,  161,  164. 
Governor,  9,  14,  19,  180. 
Harmon,  J.,  256. 
Harrison,  W.  H.,  71 
Herrick,  M.  T.,  351. 

Immigration,  12,  16,  29,  34,  53;  commissioner  of,  60. 
Independent  treasury,  165-172,  295. 
Inheritance  tax,  245,  246,  348-352. 
Inquisitor  system,  219,  239-242,  244. 
Insurance  companies,  taxation  of,  237,  245,  246,  335-338. 
Interest,  rate  of,  62;  on  state  deposits,  156,  159,  255. 
Labor,  in  1800,  18;  in  1838,  38;  in  1860,  59. 
Land  tax,  territorial,  n;  state,  21,  36,  181-201;  classification  of  lands,  184; 

non-resident  lands,  185-192;  assessment  and  collection  of  taxes,   192- 

194;  sale  and  redemption  of  land,   195-200;  criticism  of,  200-202. 
Lawyers  and  physicians,  income  tax  on,  332. 
License  tax,  352. 

Liquor  traffic,  taxation  of,  207,  211,  245,  345-348. 
Lister,  n,  183,  185,  187. 

Loans,  71,  31;  loan  law  of  1837,  80,  88,  89,  93,  104,  in. 
Lottery,  14,  330. 
Lucas,  R.  31. 
McKinley,  W.,  245. 
Manufactures  in  1811,  23;  in  1834,  35;  legislation  regulating,  45;  in  1856, 

53;  growth,  1850-1905,  65-67,  221. 
Manufacturers,  taxation  of,  207,  211,  217,  225,  335. 


357]  INDEX  357 

Merchants,  taxation  of,  II,  36,  203,  206,  208,  216,  217,  225,  334. 

Miami  Exporting  Company,  71,   257. 

Money,  scarcity  of,  14,  16,  70,  146;  disorder  in  1819,  27;  taxation  of,  207, 

208,  216,  217,  222,  224,  236. 
Nash,  G.  K.,  247. 

Ohio,  settlement  of,  9;   territorial  government,   12;  pioneer  state,   19. 
Ohio  Life  Insurance  and  Trust  Co.,  88,  287. 
Osborn,  R.,  149,  266. 
Panic  of  1819,  27;  of  1837,  39;  of  1857,  51,  286;  of  1873,  64,  100;  of  1884, 

104;  of  1893,  108. 
Personal  property,  189,  205,  206,  209,  211,  215,  216,  219,  227,  228,  230,  233, 

237,  241,  243,  244,  252,  354. 
Population,  29,  32. 

Public  service  corporations,  taxation  of,  248,  251,  252,  342. 
Railroad  taxation,  238,  244,  251,  255;  to  1851,  311-314;  1850-1866,  316-320; 

act  of  1862,  317;  board  of  assessors  for,  318-320;  excise  taxation,  1893- 

1911,  324-329;  in  hands  of  tax  commission,  327,  339. 
Railroads,  54;  early  building,  302-305;  state  and  local  aid,  305,  310;  loan 

act  of  1837,  306-309;  regulation  of,  1850-1866,  315;  construction  after 

Civil  War,  320;  Boesel  law,  322. 
Real  estate,  203,  205,  206,  207,  209,  211,  216,  219,  220,  223,  227,  229,  233, 

236,  237,  247,  250,  252. 
Revenues,  territorial,  15;  state,  68,  71,  76,  79,  81,  103,  106;  tables  showing, 

1800-1908,  118-133. 
Roads,  20,  339. 
St.Clair,  Arthur,  9,  14. 
Schools,  tax  for,  30. 

Separation  of  state  and  local  sources  of  revenue,  246,  249,  353. 
Slavery,  attitude  on,  in  1820,  29;  in  1860,  56. 
Sleeping  car  companies,  taxation  of,  245,  246,  251,  344. 
Steamboats,  24;  taxation  of,  207,  339. 
Tax  commission  of  1893,  242,  323;  of  1906,  248;  permanent,  in  1910,  251; 

report  of,  252. 
Taxation,  territorial,  10;  state,  181-354;  rates  of,  182,  206,  229,  239;  act 

of  1804,  185;  act  of  1810,  187;  act  of  1820,  191;  act  of  1825,  202;  act 

of  1831,  207;  act  of  1846,  216;  act  of  1851,  220;  act  of  1852,  223;  act 

of  1859,  229;  act  of  1878,  237;  of  banks,  257-301;  of  railroads,  302- 

329;  miscellaneous,  330-354. 

Taxes,  assessment  of,  II,  183,  185,  187,  192,  203,  211,  217,  224,  252;  delin- 
quencies in,   192,   195,  231,  235,,  254;   redemption  of  delinquent  land, 

195,  212;   sale  of  land   for  non-payment  of,   197-200,   212;  state   and 

local,  228,  233;  assessment  of  railroads,  317,  327. 
Telegraph  companies,  taxation  of,  238,  251,  340. 
Telephone  companies,  taxation  of,  251,  341. 
Tod,  J.,  93. 


358  FINANCIAL  HISTORY  OF  OHIO  [358 

Treasury  bills,  15,  23,  27,  69,  145;  administration  and  accountability,  145- 
174;  department,  present  organization  of,  172-174, 

Treasurer,  territorial,  13;  state,  145. 

Trimble,  A.,  30. 

Uniformity  rule  of  taxation,  222,  249,  353. 

Valuation  of  property,  in  1810,  188;  in  1815,  29;  in  1825  and  subsequently, 
205;  table,  206;  in  1834,  209;  in  1840,  211;  in  1847,  219;  in  1854,  227; 
in  1859,  229;  during  Civil  War,  233;  in  1870,  236;  in  1901,  247;  quad- 
rennial, 251,  253. 

War  of  1812,  25,  71 ;  of  Rebellion,  57 ;  finances  of  Civil  War,  91-95,  232- 
235;  with  Spain,  in. 

Whitehill,  J.,  156. 

Wolf  scalps,  bounties  for,  77. 

Worthington,  T.,  15. 


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